Is there a way around a partner paying additional income tax in an acquisition?


3

I'm interested in bringing on a partner (for his development abilities) for a site I'm working on.

I already have an LLC and would prefer to keep this site under that LLC. Then, I'd offer in a percentage of ownership in the new site.

His concern is that in the event the site is acquired, he'd take an additional tax hit (personal income tax)...effectively doubling his tax liability.

So, is there any way around him having such a big tax liability?

Tax Acquisition Partnerships Liability

asked Nov 10 '10 at 02:41
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Shpigford
146 points
  • I think you have to clarify the issue. I don't see how he has a doubling of a tax liability. This also seems a bit messy - although I think you can make any kind of arrangements inside an LLC, you are combining IP, relationships, etc when you really shouldn't. – Tim J 8 years ago
  • When you say partner for a site are you really meaning partner in the LLC or that he would own the URL rights instead? – John Bogrand 8 years ago
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0

Here is a clean approach...
setup an S Corp or a C Corp... (for yourself)
Have the developer do the same.

Then for each project setup its own independent LLC.
The S corps could own 50% of each LLC

So you could have:
Shpigord INC
and Developer INC

They both each own 50% of Project 1 LLC
and they each own 50% of Project 2 LLC

As those projects profit, their LLC funnels the profits upwards to their containing Corporation. The corporation can then offset the income with expenses or losses from other LLC's.

This keeps things fluid, and allows you to sell an LLC quickly.
It also provides a layer of protection of personal assets at the Corp level.

This is the model most property investors and real estate developers follow.
It can get expensive in LLC fees, but gives you some tax benefits.

answered Nov 10 '10 at 14:29
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Frank
2,079 points
  • What tax benefits? – Tim J 8 years ago
  • The tax benefits are realized that you can offset losses from one lcc to the other, because they all go up to their parent S-corp – Frank 8 years ago
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