LLCs are separate entities only in the eyes of the particular state(s) where they are registered. Note that all LLCs are state registrations and come under laws that vary widely from state to state. The IRS tends does NOT recognize LLCs for tax purposes, so they treat all "members" of an LLC as an ordinary partnership for federal tax purposes only. Look at the state regs, most are no doubt online. Regards/Roger, in Bangkok On Tue, May 12, 2009 at 5:36 AM, Bob Axtell wrote: > I'd get my money upfront. If you have an arrangement like this, you > will be forever wondering > if you are being screwed... and you probably are... > > --Bob A > > On Mon, May 11, 2009 at 12:16 PM, Vitaliy wrote: > > alan smith wrote: > >> For those outside the US..can probably ignore. So I have a long term > >> "partner" who brings me in on projects when he needs a board or circuit > >> designed for his clients projects. Its worked well over the years and > now > >> he has a product of his own to design and sell. Initially he approached > >> me and asked for a bid on doing the design, and I provided that to him. > >> Then he asked..do you want to just be paid, or have a cut of the profits > >> (always a risk)and honestly my time and materials on the board are about > >> $10, pretty small risk. Now comes the question on tax liability. He > >> wants to form a LLC, with myself and two others. The LLC will purchase > >> the pieces from us...my board, his mechanical part all at 'cost' and > then > >> we get paid back from the LLC, as profit sharing. From a tax liability, > >> my costs for parts (no labor) are a tax deduction on my schedule C for > the > >> consulting business, and then the profit is typically my design and > build > >> time, very straight > >> forward but its all under my company name. Now that the LLC is thrown > >> in...I wonder how the IRS looks at me selling something to the othe LLC, > >> and then taking back profits. Either the LLC pays me direct for the > >> costs, and then takes in profit sharing above that but it seems just > >> slighty odd and not sure completly legal to do. > >> > >> Just wondering if anyone else has been involved in something like this. > Of > >> course the obvious answer is...talk to a tax attorny but figured I would > >> try to get some idea from the list...as there are several smart business > >> folks on here as well. > > > > IANATA, the following is just my opinion, etc etc... :) > > > > It seems to me, that what you proposed would be completely legal. The LLC > is > > a separate entity from your physical person, so the LLCs can conduct > > business, even if they share members. > > > > For a thought experiment, take it to an extreme. Say there are two LLCs, > > each with 100 members, and you happen to be a member of both. First LLC > > makes a gadget that is a critical component in a Second LLC's product. > Would > > the IRS force you to sell your share in one of the LLCs, or force the two > > LLCs to merge? Unlikely. > > > > Or consider a situation where you are a member of First LLC, and your > spouse > > is a member of Second LLC. There's clearly a conflict of interest as far > as > > IRS is concerned, right? Where would they draw the line -- immediate > family, > > cousins, relatives twice removed? > > > > If I were in this situation, I would not give it a second thought as to > the > > legality of such arrangement. > > > > Vitaliy > > > > > > -- > > http://www.piclist.com PIC/SX FAQ & list archive > > View/change your membership options at > > http://mailman.mit.edu/mailman/listinfo/piclist > > > > -- > http://www.piclist.com PIC/SX FAQ & list archive > View/change your membership options at > http://mailman.mit.edu/mailman/listinfo/piclist > -- http://www.piclist.com PIC/SX FAQ & list archive View/change your membership options at http://mailman.mit.edu/mailman/listinfo/piclist