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Series LLCs

October 9, 2013 By Andrew Abramowitz Leave a Comment

Businesses organized as LLCs, just like with corporations, often find it advisable to form multiple LLCs to cover different lines of business to keep liabilities associated with one business isolated from the others.  However, the formation of multiple entities increases the business’s administrative costs.  For each new entity, there are filing fees and then ongoing franchise taxes with the state of organization and other states in which the company does business, separate tax returns, etc., so the business has to weigh these costs against the benefits of asset protection before making the decision to form new entities.

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Related posts:

  1. Preserving Anonymity with LLCs
  2. Incorporation in New York or Delaware?
  3. Series Seed Preferred Stock Documents

Filed Under: General Corporate/M&A Matters

Use of “Profits Interests” for LLC Equity Compensation

July 29, 2013 By Andrew Abramowitz Leave a Comment

With limited liability companies (LLCs) having become a widely-used form of business entity for new private companies, I am often asked by LLC clients about compensating employees and other service providers in company equity.

The basic tax planning goal in setting up these equity grants is to avoid triggering an immediate tax to the recipient prior to any distribution of cash to pay this tax.  This is not a practical issue with true startup companies that have no or very limited value, since there is not a significant tax.  However, if the company does have value, and it makes a simple grant of equity to a recipient, there is taxable income to the recipient equal to the fair market value of the equity.

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Related posts:

  1. Links to Some of My Greatest Hits
  2. Whether to Pay Profits out to Shareholders
  3. New York’s LLC Publication Requirement

Filed Under: General Corporate/M&A Matters

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"If the goal [...] is to protect people from losing all of their money in an illiquid investment, the current standard fails on that count, too. Andrew Abramowitz, a lawyer in Manhattan who has worked with both buyers and sellers of private placements, said a better standard might be to limit how much of their net worth people can invest." -- Paul Sullivan (New York Times)

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