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March 21, 2018

Is There A Danger Of Using My Home Address As The Registered Agent?

When forming an LLC my home address was used as there was no office space as yet to list. Will this compromise the LLC and enable anyone to claim against the home address in case of loss?


The short answer is no.

You can use your home address for an LLC as the use of a home address alone as your registered agent address will not cause your corporate veil to be pierced.

Piercing the corporate veil is an extreme remedy, and it usually takes multiple factors–including fraud by the owners/officers of the entity–to cause a court to pierce the veil.

The biggest disadvantage to listing your home address is that you will now get a ton of junk mail to your home because your LLC filing is public knowledge and marketers can purchase a list of newly formed companies.

Every state has a website where any person can search the name of a corporation or limited liability company and see, at a minimum, the registered agent address. Some states further require annual filings listing the officers of a corporation or LLC, and that information is also public.

But at A minimum, your registered agent address is always publicly visible. Furthermore, most states let anyone view the change history to an LLC’s registered or resident agent. If you want to keep your connection to an LLC private for some reason, then you should use an outside provider as your registered agent and not your home address.

Also, if your company is ever sued, the summons will be served at your home, which might cause embarrassment.

For example, I had a client who was sued in federal court by an out-of-state bank on a defaulted business loan, and the bank decided to have the US Marshall serve the summons instead of using a private process server. The client was obviously upset, scared and embarrassed as her neighbors saw federal agents in marked vehicles outside her home and in this world, people are likely to think she did something criminal rather than a mere lawsuit on a business loan.

While many businesses are operated out of the home and there isn’t a separate business address, it may make sense to use a registered agent service. These services provide a business mailing address. In some states, you can use a mailbox service, but a PO Box address is never allowed. Many states though require a physical address and/or registered office where there is a person who can sign for documents if they get served to the business. Be sure to check your states LLC rules and regulations.

If you initially started with your home address, you can always change your registered agent to one of the many registered agent services available in every state. They usually charge anywhere from $75-$200 per year, depending on the level of services provided and who you choose to use.

Some LLC formation services like IncFile offer a free registered agent trail when you sign register your LLC through them.

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March 21, 2018

Can an LLC Owned by Husband & Wife Change Tax Filing Status?

We have owned our business since 2004 and are an LLC owned by husband and wife. I am the majority owner (75%) and my wife has 25% ownership. We currently file with one joint personal return and one for the LLC taxed as a partnership. We have not filed for this year but want to change our filing status to be a disregarded entity. Can I elect a disregarded entity and file only one return? The LLC was formed in Delaware and we are residents of Delaware and the business is located in Massachusetts. If so, is there anything special I need to do given that we filed separate business and personal returns previously?


Use IRS form 8832, Entity Classification Election, to elect to have your LLC taxed as a disregarded entity (the only limited liability companies eligible for such treatment are single-member LLCs and LLCs where the only two members are husband and wife):


An LLC with at least two members will be classified as a partnership by default unless Form 8832 is filed with the IRS and elects to be treated as a corporation. Also, a single-member LLC is automatically a disregarded business entity taxed as a sole proprietorship unless Form 8832 is filed and the corporation status is elected.

Under IRS rules, you have to file the Form 8832 no later than 75 days after the date you want the new classification to take effect.

In your situation, it’s too late to elect disregarded entity status for last year’s return. However, you can file your Form 8832 to elect disregarded entity status going forward. Attach a copy of your Form 8832 to your partnership tax return when you file it.

Is there any reason to continue to do the separate returns? Is there any other reason to do it besides the obvious administrative benefits?


If you are a married couple and file joint personal tax returns, I can’t think of any reason why your tax situation would change going from partnership taxation (where you and your spouse are the only members of the LLC) to disregarded entity status.

So yes, the advantage of the disregarded entity status is the administrative benefits.

The only advantage to keeping it separate, and this is an “advanced” topic, is that as a disregarded entity, your income and expense statements are on your Schedule C, as opposed to a separate form 1065. Now, there are tax advisors who speculate that you are less likely to be audited if you file as a partnership using form 1065 rather than as a disregarded entity using

Schedule C. The statistics do somewhat support that view.

One thing to keep in mind is whether the LLC is in a community property state. LLCs owned by a husband and wife in (AZ, CA, ID, LA, NV, NM, TX, WA, & WI) can treat their LLC as a disregarded entity for federal income tax purposes if: the LLC is wholly owned by the husband and wife as community property under state law and not taxed as a corporation. This often means that each spouse would file a joint tax return with a Schedule C.

That said, even the “increased” chance of audit using a Schedule C is about 2% (meaning, you have a 2% chance of being audited in any particular year).
With proper records and receipts, an audit should be nothing to fear. Furthermore, many audits are conducted through the mail and do not involve an IRS agent physically rummaging through your desk drawers and files.

The administrative benefits of disregarded entity status accrue each year, while the chance of an audit is slim (you have a 98% chance each year of NOT being audited).

The choice is ultimately yours but you may want to engage a CPA to fully discuss the options.

Return to Ask A Question About Single Member LLCs.

Can a Single Member LLC be owned by Husband and Wife in A Community Property State?

For tax purposes, can an LLC whose only members are husband and wife be treated as a single member LLC in a community property state (CA)?


For income tax purposes, an LLC owned solely by husband and wife can be treated as a single member limited liability company. This includes the election as a disregarded entity.

Whether the limited liability company is formed in a community property state (AZ, CA, ID, LA, NV, NM, TX, WA, & WI) is not relevant for this purpose–LLCs in all states can elect single member LLC status if owned by a husband and wife who file their income taxes jointly.

Of course, being in a community property state will obviously have an impact on the distribution of the LLC membership interests in the event of a dissolution of the marriage.

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March 19, 2018

How Do We Pay Out Distributions To Members?

In an operating agreement for an LLC do you have to spell out exactly how and when the distributions to members are paid out or do you have to pay out your profits as they are incurred?

Example: Can I state in my operating agreement that I will pay out a certain dollar amount per month, starting on a particular date (i.e. beginning in year 3) until the member’s entire investment has been repaid plus an additional dollar amount (say double what they have paid in) and then can I make a particular date and a particular dollar amount to buy them out?

This way I know my exact cash flow to investors.

I understand that they will pay taxes on the profits of the business, but is that regardless of how much I actually distribute to them (I do know that they won’t pay taxes on return of contribution or basis) or do I need to pay them consistent with the profits of the company in addition to their return of contribution?

Thanks for this forum, these are burning questions.

– Lori, Colorado


You can (and should) definitely spell out in exacting detail in your Operating Agreement how the LLC members will be paid.

Also, a Limited Liability Company that is taxed as a partnership is permitted to distribute cash ‘unevenly’ (an amount disproportionate to the member’s ownership interest).

Remember that a member of a pass-through entity does not pay taxes based on money distributed to them, but on their proportionate share (known as pro-rata share) of the LLC’s profits or losses. An LLC is permitted to distribute losses differently among the members –e.g. a member with a 1% interest can take 90% of the tax losses in a particular year.

This can be spelled out in your LLC operating agreement.

Similar to a single-member LLC, a multi-member LLC that is taxed as a partnership or S corporation, does not pay taxes on net income.  Instead of the entity paying taxes, the pass-through taxation is reported on each member’s IRS K-1 form. The amount on the K-1 can be the same or different from the amount distributed.

You can distribute money to investors even if you don’t have profits (or, conversely, you can distribute less than the full amount of profits). These payments can be characterized as interest on a loan, or as guaranteed payments.

Once you get multiple classes of members, with different allocations of profits and distributions, you really ought to get the advice of an attorney or accountant. These are not the type of operating agreements to draft on a napkin after reading something on the internet.

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March 19, 2018

Transferring Single Member LLC To Another Person

My business is a single-member LLC – 100% ownership is mine. I would like to transfer complete ownership to someone else (relative). Can I just make a transfer document and do it or do I have to redraft the operating agreement?

What other requirements are there for transferring ownership of an LLC?


To transfer ownership of the entire LLC, there are a few things you need to do:

  1. Assign your interest in the Limited Liability Company to the buyer. This involves the transfer of ownership through the membership interests of the LLC. At a minimum, draft a resolution of the members of the LLC approving the sale of the interest.
  2. If you have one, amend the Operating Agreement to add the buyer as a member and remove the seller as a member. Many states, such as Arizona, don’t require a written Operating Agreement, especially for single-member LLCs.
  3. Each state has a process for updating the members of record. Some will have a form to file upon the date of the change of ownership, while other states update the names of the members on the annual report.
  4. A buy-sell agreement will be needed that outlines transaction, along with a list and price of the assets that are being transferred, the sales price of the business and any other relevant details regarding the sale of the business. This information is needed for the IRS as there are tax implications for both the buyer and seller.
  5. Last, with the change in ownership, a new EIN will be needed for the new owner.

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March 18, 2018

Managing Member vs Member

In a LLC structure, is there a difference between being called or titled a Managing Member vs being titled or called Member?

– Spencer, New York


All Managing Members are Members, but not all Members are Managing Members.

Managing Members are those specifically able to bind the Limited Liability Company contractually. In the legal world, they have “actual authority” to contract on the LLC’s behalf.

Members may or may not be able to bind the LLC contractually, and doctrines like “apparent authority” and “actual authority” come into play. If the member is authorized as an agent to execute contracts on behalf of the LLC, the member is said to have actual authority. However, a member who does not have actual authority can nonetheless bind the LLC if that member has apparent authority.

The Managing Members should be the people who are transacting the business of the LLC and should be thought of like the executives of the LLC as they are actively involved with day-to-day operations. Not all LLCs will have a Managing Member.

Another aspect of being a Managing Member vs a Member is the extent of fiduciary duties. Depending on how the operating agreement is written, a Managing Member may have more responsibilities (and possibly liability) than just being a Member. This can vary by state too, so be sure to verify.

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March 14, 2018

Does an LLC Protect a Business in a Divorce?

If I have been working a business by myself, can I form an LLC and have my business protected in case of a divorce?


Are you already married?

If you’re already married, there isn’t a whole lot you can do to protect your assets in case of a future divorce regardless of whichever legal entity you choose.

If you aren’t already married, the laws for divorce and LLC ownership differ by state. It’s a really good idea to get professional guidance, but generally, you are able to keep what is termed “separate property” in a divorce. Separate property is money obtained prior to the marriage, or by gift or inheritance. Typically, the property that was owned before you were married is non-marital property and can be kept separate when you divorce. Forming an LLC or corporation is necessary going to keep the business assets separate from the individual, so if your business is a sole proprietorship or partnership (which is a little more complex), you would want to consider forming before getting married.

The trick with separate property is that if you commingle it with marital or community property, it can become marital property. If this happens, the LLC or corporation is likely going to become included as joint marital assets.

So, if you get a big inheritance after your marriage, and deposit it in a joint checking account with your spouse, and both you and your spouse are putting money in and taking money out of that account, your inheritance is likely to become marital property.

The same goes for your interest in your Limited Liability Company – it’s no different than if you buy stock during your marriage. It’s likely to become marital property.

Now, some people form companies and LLCs to fraudulently conceal assets in a divorce for asset protection, but that is a whole separate issue and will cost someone a lot more than if they were just to split assets.

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March 14, 2018

Filing An LLC Tax Return When Your Company Made Little Or No Money

We began a small business two years ago as an LLC. We are just getting started and our production is not even running yet. We have made no income from our business yet, but we have put money into all the equipment and supplies etc. Do we need to file taxes?


The question of how to file taxes for an LLC (Limited Liability Company) with no income comes up often and filing requirements will vary by state, but generally, LLCs that elected to be taxed as a sole proprietorship or general partnership doesn’t have to file a tax return with the IRS. Some states will require a sole proprietorship or partnership to file a tax return, even for a pass-through entity so be sure to verify if your state does. An LLC that elected to be taxed as a corporation will have to file a tax return regardless of business activity. While an LLC is not required to file a tax return as a sole proprietorship or partnership may be making a costly mistake.

Many LLCs and yours sound like it falls into this category, will have start-up expenses when starting. Expenses may have come from the purchase of equipment and a variety of supplies. Some expenses can be deducted in the year they were realized like the supplies while other deductions like depreciation of equipment and amortization expenses will have to be amortized over time.
By not filing a return now you won’t be able to write those deductions off. If you were to file a return, those expenses could be carried forward to reduce income in a future year or reduce your personal income tax return. With the investment in equipment, this can be very costly.

I want to also remind you that in most states there are additional filing requirements besides taxes like a franchise tax & return or annual report that is due annually. This is separate from filing income taxes and must be filed regardless of business activity.

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March 14, 2018

How To Answer The Specific Purpose Question When Forming A Missouri LLC

In Missouri, when forming an LLC, I’m asked for the “specific purpose” of doing business. If you put something, for example, online selling, does that mean that in the future if you decide to sell artwork from your home or out of a brick and mortar that you couldn’t do it from that business?

– Jackie, Missouri


In the old days, corporations had very defined statements of purpose.

If the corporation performed business activities not defined in their corporate charters and/or articles of incorporation, these acts would be considered ultra vires, and voidable by the company under certain conditions.

This could cause a lot of problems for anyone dealing with that business–they would literally have to read the corporate charter before engaging in a transaction.
That sounds confusing, right? Well, you’re not the only one confused. Which is why many states, including Missouri, permit the following LLC’s business purpose example:

In the Articles of Organization listing the LLC purpose statement should include at least one sentence which defines the specific purpose for which the company is organized (for example, what it will do to make a profit). You may also include if desired, a purpose statement such as

“and all other legal acts permitted limited liability companies.”

Some states will allow the generic statement which keeps your options for other business activities in the future. Some states require

additional information. It’s worth noting that the LLC statement of purpose can be changed, but will typically require a form and filing fee to allow the change to be made.

Taken from Missouri limited liability company Articles of Organization Instructions.

So, here’s a solution. Enter one sentence explaining your business’s main activity as you think it will be now. Then, add the following language to the end of the sentence:
“and all other legal acts permitted limited liability companies.”

If you are forming a real estate holding company, for example, it could read:

To purchase, sell, hold, own, and operate real property within the state of Missouri and all other legal acts permitted limited liability companies.

This will protect you in case your business direction changes over time.

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March 8, 2018

Can a Member of an LLC Receive a Salary?

It is possible for a Limited Liability Company to pay members a salary, but this depends on the tax classification.

An LLC that elected to be taxed as a sole proprietorship or partnership is unable to pay its members a salary. Since the LLC is a pass-through entity, the members “salary” are the profits of the business. Instead of a salary like an employee, members can receive a draw from the LLC.  This may subject the members to paying quarterly federal estimated tax payments.

An LLC that elected to be taxed as a corporation can pay its members a salary that work in the business as they are considered employees. This will mean having to withhold income tax and pay a part of payroll taxes such as social security and Medicare (the employee pays part as well). The remaining business profits are distributed as dividends to shareholders. Since dividends are typically taxed less than income, it is important to ensure members are being paid a “reasonable salary”.  It’s tempting to want to pay a majority of salary as dividends but that increases the risk of an audit from the IRS. The IRS test of what is reasonable varies by industry and the member’s involvement in the business activities.

March 7, 2018

Adding A New Member To An LLC

I started my LLC in 2015, and I got an EIN for single-member. Now I need to add my dad to the LLC. So, I am going to get a new EIN?

Do I need to file form 8832 to notify them of the change from proprietorship classification to partnership-classification.

Since, partnership-classification is the default for multi-member do I need to file this form or is getting a new EIN sufficient.

– Chirag, New Jersey


You don’t need a new EIN (Employment Identification Number) when adding a new member to a single-member Limited Liability Company. This is unless you never got an EIN for your LLC and were using your Social Security Number.

Changing tax classifications does NOT need a new EIN.

You will have to change your tax classification (using Form 8832 as you mention in your question). This is a move from a single-member disregarded business entity to a multi-member LLC (partnership taxation).

Before you were likely taxed as a disregarded entity or sole proprietorship and now you will file IRS Form 1065, a partnership tax return. Each member (yourself and your dad in this instance) will receive a K-1 from the 1065 stating your share of profits or losses to report on your own 1040.

When adding a member to an LLC, be sure to document this in your written Operating Agreement. Not all states require an Operating Agreement, but some do. Additionally, some states that don’t require one for a single-member LLC will for a multiple-member LLC. At the very least, you should document the following in writing:

  1. The consideration paid by the new member for admission to the LLC (e.g. money, services to be performed, contributions of equipment or real estate, etc.);
  2. The amount of membership units being acquired (i.e. “shares” of the LLC);
  3. The effective date of the transaction;
  4. Voting rights of the new member. Are they proportional to the new member’s interest or is the new member passive with no voting rights?);
  5. Whether existing members have a right of first refusal to buy the new member’s shares. If a member wishes to sell their membership units, what is the formula to calculate the price of those shares?

All the above and more are often found in the LLC Operating Agreement. A few other topics to consider include:
– How to divide membership units (shares) between you and the new member
How to divide profits and losses
– Whether a member can sell his/her shares to an outsider. This can include offering the other members right of first refusal
– and many other topics.

After updating the Operating Agreement, verify if you need to file an amendment with the Articles of Organization. Some states require the filing of a form to amend the Articles of Organization, while others do not. This is usually handled through the Secretary of State. Some states handle adding new members by updating the annual report.

Logistics of Adding a New LLC Member

While a lawyer isn’t required to draft an Operating Agreement there may be issues not being addressed. For example, how many of the five issues listed above did you think about before I listed them for you? There are likely a few as this is a complex document.

So, it is a good idea to get some help with your Operating Agreement. Services like RocketLawyer have templates available to help get started.

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