How LLC works?

3 Replies


Trying to rap my head around this.

Let's say that there is an LLC established and we have completed a few deals. What if one day a member of the LLC wants to leave for whatever reason how would he get out and what impact will that cause the other members?

Also, if I have a partnership with one LLC group and decide I want to be a silent partner with another investor will I a new LLC be required?

Lastly, the profits from the investments go into a LLC account prior to disbursement. How are the taxes paid from these earners? In other words, would each of us get some kind of tax return?



The first two of your questions are a legal liability question, which should only be addressed by an attorney licensed to practice in your particular state.

The second of your questions is a tax question. There are plenty on this forum who will step in to answer that question shortly.

That said, there is some basic information I can give you based on my own jurisdiction. However, these laws are state by state basis. What flies in Virginia may not fly in your particular state. Generally speaking, the process of an LLC member leaving depends on the articles of incorporation and how the LLC is structured, as well as the type of member that the person is; such as whether they have stock or not. LLCs are free to contract around how such disbursements are to be made in the state of Virginia with only a narrow limit on how those buyouts ought to be performed, or even if buyouts are required at all.

As for the second question, it depends on the terms of your arrangement with the second LLC and the scope of that business arrangement. There may be terms which could limit your ability to seek out a third party investor. A new LLC may or may not be required based on the terms of the arrangement.

For more definite information, seek out a local attorney to review all documents in your case.

Hello @Armand P.

There are many considerations when considering a choice of entity and you should definitely have a discussion with an attorney and tax professional that are experts in real estate. It is very difficult, if not impossible, to apply “general” advice to your specific situation. Let me see if I can give you some information to point you in the right direction and help you understand the concepts.

It looks like you have three questions which I will address separately:

  • 1. You will need to consult the LLC operating agreement which should layout how the buy/sell would work. The LLC operating agreement is the starting point for the mechanics of the "how" and "if" questions. It is imperative that you understand and follow your LLC operating agreement. Get some help from an attorney that is licensed in your state.
  • 2. I am not sure what you are asking here? It is certainly possible to have one LLC with one group of members and then have a second LLC with different members. It would depend on how you were to structure the deal. Remember that even if you do not create a formal entity, you may create a partnership for federal tax purposes if you and another party share in net profits. Beware of informal partnerships.
  • 3. This would depend on how the LLC is taxed. Generally, for federal tax purposes, the LLC would be taxed as a partnership. This is not always the case as you could elect to be taxed differently. If the LLC was taxed as a partnership the entity would file a tax return and the members would receive a Form K-1 that would should the partner's share of income, deductions, credits, etc.

This is complex stuff.