Can you just pay a partner for expenses and not an actual compensation fee?
We have just started and have agreed that if we can withhold from paying ourselves for the rest of the year it would be a good way to get extra working capital for the business.

– Amie, Ohio


Answer

There is no requirement under the LLC statutes that you pay out profits to the members. Members can (and often do in practice), work without compensation in the start-up years of a new business. Often times, the members will even lend money to the LLC to get it started if they don’t have access to outside investors.

Remember, however, that as the LLC earns profits, those profits will be reported on the members’ tax returns, and generate tax liability, so the LLC might want to distribute at least enough of the profits to the members so that they can pay their taxes.

In most cases, brand new businesses lose money during the first year or two. In that situation, those losses can be taken as tax deductions by each member on that member’s personal tax return.

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