Hi all,
I formed my startup as an LLC with one partner. Its a service business thats based on a monthly subscription model.
The startup idea has been validated and its growing. Revenue is starting to get to a decent monthly level and its prompted me to step back and take a look at the overall plan yet again.
I was initially planning to have the business generate revenue and just take distributions. As an LLC, as I understand it, its pass through income and taxed as personal income anyway. Recently I have been bouncing a different plan around in my head:
What if I altered the business structure of the LLC to that of a C-Corp instead? Then left most of the net revenue (after putting some revenue back in to scale) the company generates "In" the company by taking much smaller owner distributions. (The truth is, I dont need a large paycheck, I live very frugal). My thinking is the company revenue would be taxed at a lower rate. Once the company generates a sufficient grub stake, invest it into other assets, possibly hard assets such as real estate (multi-units, commercial properties etc.). Then as the hard assets begin to cash flow, take distributions from that revenue instead of the company's direct revenue.
Im not sure how the hard assets would be held, perhaps in another LLC which is a subsidiary of the C-Corp, not sure (most likely a lawyer question) but basically its using the C-Corp revenue to buy hard assets, then getting paid from those assets (rent) rather than direct company revenue (from customers).
My thinking is that the revenue from commercial and large residential properties is more passive, and also appreciation can be obtained (my area has very high RE appreciation). The company builds a portfolio of assets, and its also slightly diversified in its income stream. If the core business faces challenges, there would (in theory) be another income stream coming in each month.
Does this sound like a better plan than taking straight distributions in an LLC and then trying to buy these hard assets afterwards? I think my end goal would really be to own a few multi-units anyway. Just trying to figure out if my startup can be structured to more easily achieve that goal.
I formed my startup as an LLC with one partner. Its a service business thats based on a monthly subscription model.
The startup idea has been validated and its growing. Revenue is starting to get to a decent monthly level and its prompted me to step back and take a look at the overall plan yet again.
I was initially planning to have the business generate revenue and just take distributions. As an LLC, as I understand it, its pass through income and taxed as personal income anyway. Recently I have been bouncing a different plan around in my head:
What if I altered the business structure of the LLC to that of a C-Corp instead? Then left most of the net revenue (after putting some revenue back in to scale) the company generates "In" the company by taking much smaller owner distributions. (The truth is, I dont need a large paycheck, I live very frugal). My thinking is the company revenue would be taxed at a lower rate. Once the company generates a sufficient grub stake, invest it into other assets, possibly hard assets such as real estate (multi-units, commercial properties etc.). Then as the hard assets begin to cash flow, take distributions from that revenue instead of the company's direct revenue.
Im not sure how the hard assets would be held, perhaps in another LLC which is a subsidiary of the C-Corp, not sure (most likely a lawyer question) but basically its using the C-Corp revenue to buy hard assets, then getting paid from those assets (rent) rather than direct company revenue (from customers).
My thinking is that the revenue from commercial and large residential properties is more passive, and also appreciation can be obtained (my area has very high RE appreciation). The company builds a portfolio of assets, and its also slightly diversified in its income stream. If the core business faces challenges, there would (in theory) be another income stream coming in each month.
Does this sound like a better plan than taking straight distributions in an LLC and then trying to buy these hard assets afterwards? I think my end goal would really be to own a few multi-units anyway. Just trying to figure out if my startup can be structured to more easily achieve that goal.
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