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LLCs for Practice Investments

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  • LLCs for Practice Investments

    I am about to purchase my second set of working class shares for a freestanding emergency room in TX that I work in. I was advised by my accountant to start an LLC to hold my first set of working shares (when I inquired why, he stated it was for liability purposes, but I'd really like to read more about this as I like to understand these concepts in detail). Now I am planning on buying working shares at an unrelated freestanding emergency and I am unsure as to whether I should create a separate LLC for these or simply place them in the same LLC. I am looking for posts to help me understand these decisions, but I can't formulate a search that would target such a topic. Does anyone have any recommendations about what to do or what to refer to to come up with and understand the best approach?

  • #2
    It makes no difference tax-wise how you're holding your investments, whether one LLC for each investment or an LLC holding multiple investments.  It's the same as not holding them through an LLC because a single-member LLC is disregarded for tax purposes.

    The accountant is stepping out of his lane a bit to advise using an LLC for liability purposes only.  That's for an attorney to decide and possibly an unnecessary step.


    • #3
      That makes sense. So there isn’t anything I can read to understand how an attorney would make the decision of whether to recommend an LLC (one or two for the investments)? I just need to find one and see what they say?


      • #4
        There's nothing I know of to really answer your question besides consulting with an attorney who can speak to your situation.

        I personally wouldn't bother with the LLC to hold your investment but every situation is different.


        • #5
          The concept is a liability of an LLC is limited to the assets of the business.
          Because you are buying working shares, what is the form of the clinic and what is the ownership liability exposure?
          Would a liability come to you?
          If so, would you want assets of your LLC to be exposed jointly or separately?

          It’s not uncommon for one LLC to own two other LLC’s or to be owned personally.
          Separate businesses, one goes down and the other is protected is the concept.

          Definitely see an attorney. Preferable one you would use if hit with a lawsuit or decide to exercise the asset protection.

          Down side, separate set of books ,taxes, insurance and administrative work.


          • #6
            Thanks for the information and the link.


            • #7
              There are a couple of reasons to use an LLC, but I'd completely agree with consulting an attorney.  Not just any attorney, but one who knows estate planning/asset protection topics well in your state.

              The first reason to consider an LLC is to provide "outside" asset protection-so that a lawsuit against the surgery center can't come at your other assets.  An "inside" lawsuit could endanger the surgery center assets itself, but that is what liability insurance is for.   The LLC might also (state dependent) offer asset protection from creditors that are suing you for another reason.   As a Florida example-posit that you own the surgery center shares by a multimember LLC and you are sued successfully for an auto accident.  If you owned the surgery center shares solely, they'd be on the table for your creditor in the auto case.  If in an LLC, the creditor can only get "charging order" protection-which entitles them to any profit distributions you get, but not the corpus of the investment.


              A second reason some use an LLC is to clean up their personal return.  This is more commonly done if there are losses.   Using a schedule C on your personal return will be reviewed on an audit (and may trigger an audit in some cases).  If the LLC has all the financial data in it's own return, your personal 1040 is "cleaner."


              • #8
                I agree with Steven Podnos' second reason but want to clarify that the activity of the LLC is only on a separate return if there is more than one member or it's elected to be taxed as a corporation (C or S).  Having activities on separate returns does make it harder for the IRS to audit because they need to expand the audit to an additional return but that has to be weighed against the annual cost of filing that extra return every year.