Why set up an LLC for investing?

If you’re looking for a way to protect your assets and limit your liability, setting up a limited liability company (LLC) for investing might be the right choice. An LLC can provide several benefits when it comes to investing, including asset protection and tax savings. In this article, we’ll discuss why you should set up an LLC and what exactly an LLC can offer investors like you!

What is an investment LLC?

An Investment Limited Liability Company (LLC) is not only easy to create, but it offers many benefits, including liability protection and tax benefits. Be sure to note that limited compliance laws vary by state.

Compared to sole proprietorship, partnership, and other popular forms of business organizations, LLCs give business owners greater federal taxes flexibility and make it possible to write off different costs. Start by having a financial plan in place for your business.

LLC for new investors

Investment LLCs are generally created as an investment vehicle for families, partners, or groups of friends, who are looking for ways to pool money for investment purposes. LLC members also gain the benefit of limited liability protection.

Setting up an LLC allows you to invest in stocks, bonds, mutual funds, real estate, and other opportunities.

You can either set up an investment LLC yourself or use a registered agent to do the work (like filing paperwork with the state).

Operating Agreement

The operating agreement of the investing LLC will eliminate ambiguity about the business investments and business strategy. It incorporates rules and regulations related to finance, roles, and responsibilities of members, and management structure.

Whether it’s a single-member LLC or a multi-member LLC, there should be an operating agreement in place. It will benefit all the LLC owners in setting up an investment plan for their limited liability company.

A standard LLC operating agreement includes the procedure for LLC members selling their shares, whether or not the members are obligated to contribute regularly to the LLC, how the funds will be invested, and if there are any investment restrictions to certain types of assets.

Tax advantages of an investment LLC

There are multiple ways of managing taxes as an investment LLC. How you pay taxes and do your tax return should be discussed with a financial advisor.

An LLC is a great way to start your investment business. They are called pass-through entities for tax implications and are exempt from federal tax.

Pass-through taxation means any profits or losses the company earns pass through the business and on to members. So each member is held personally liable for reporting their portion of gains or losses on their own yearly federal tax return.

More benefits of setting up an LLC for investment purposes

1. Liability Protection

Once an LLC is established, it is seen as a separate legal entity from its owners. This means that the members of an LLC benefit from personal asset protection in the unfortunate event of being sued or subjected to collections by creditors. The members are only subject to losing the amount they’ve put into the company, whilst their personal assets (real estate, personal bank accounts, etc) are protected.

2. Group Investing

Like a partnership, an investment LLC allows people to pool money together to make investments. The benefit of a Limited Liability Company over a partnership is providing personal asset protection just like a corporation. This is ideal for families, looking to build savings for future generations.

3. Taxes

LLCs do not pay federal income taxes, meaning that once the owner invests in an LLC, they’ll save money as their tax obligations are smaller than when investing as an individual.

As a sole investor, you will pay taxes on all sources of your income, including earnings from stock dividends and capital gains.

4. Diversified portfolio

Combining knowledge and finances allows the investment LLC to purchase higher-value stocks, as well as diversify your investment portfolio.

How and why set up an LLC for investing?

In conclusion, whether you’re looking to make some real estate investments, open a family business to build savings, or make any other investments, setting up an LLC will benefit you in many ways.

Once you’ve filed paperwork for your LLC, you must open a brokerage account and send in an operating agreement. The last step before investing is obtaining a Legal Entity Identifier or LEI

Investment LLC and Legal Entity Identifier

A Legal Entity Identifier (LEI) is a 20-character, alpha-numerical code based on ISO 17442 that links to reference information identifying legal entities participating in financial transactions.

It is a universal identifier that answers the entity’s ownership structure, ‘who is who,’ and ‘who owns whom.’

When opening an investment LLC bank account, you must have this unique identifier registered for your business.

A company’s LEI will be public and contain data about the company’s registered and trading names; company type; registered address; registration number; parent company information; child company information.

After forming the G20 concept, the Financial Stability Board (FSB) appointed a new not-for-profit organization, The Global Legal Entity Identifier Foundation (GLEIF), to watch over it.

The foundation doesn’t issue the codes but leaves that to a network of public and private companies acting as Local Operating Units (LOUs). 

An LEI code is needed for investing as an LLC. To obtain an LEI code, you’ll want to reach an LEI Registration Agent.