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What Is an Investment LLC?

An investment LLC, also known as a Limited Liability Company, is like your trusty sidekick for investing through your company. It’s a straightforward business entity that allows you to establish specific rules and agreements with fellow members of your investing circle.

Here, we’ll explore the investment options available through an investment LLC, discuss LLC Operating Agreements, and provide all the essential details you need to know.

What You Can Invest in Through an LLC

Here are some common investments you can make with your investment LLC:

  • Stocks, exchange-traded funds (ETFs), and mutual funds
  • Bonds, certificates of deposit (CDs), and other fixed-income instruments
  • Real estate and development
  • Ownership of other businesses and entities

Keep in mind that LLCs usually can’t be used to hold investments in 401(K), IRA, ROTH, or other retirement plans or vehicles.

LLC Operating Agreement: Why It Matters for Investing

Operating Agreements play a crucial role for investment LLCs because they let you establish rules, regulations, and other important procedures for your investors, outlining how your business operates.

In a standard LLC, an Operating Agreement covers various areas such as voting, compensation, accounting practices, selling or exiting the business, resolving disputes, bringing new members aboard, and similar matters.

For an investment LLC, the Operating Agreement covers all these bases and more. It can delve deeper into defining how LLC members (and the LLC as a whole) fund and execute investments. For instance, an Operating Agreement could detail:

Here’s what an Operating Agreement for an investment LLC might cover:

  • How much each member needs to chip in monthly for investing purposes
  • The investment mix and portfolio type, like the balance between stocks, bonds, ETFs, mutual funds, real estate, and other areas
  • When and how to adjust the LLC’s portfolio
  • Guidelines for buying and selling financial assets
  • Limits on certain types of investments
  • How investment gains and losses are divided among LLC members
  • Criteria for researching and choosing new assets to invest in
  • Who’s authorized to make trades for the LLC
  • What happens to a member’s investments if they leave the LLC
  • Regular reports on investment returns, gains, and losses

Having an Operating Agreement is great because it means everyone’s on the same page, following a shared set of rules and standards for investing. It clears up any confusion and lowers the chances of misunderstandings or issues down the line.

Working With Providers That Allow Llcs to Invest

Not every financial provider or asset type fits well with an LLC — you’ll want to look for providers that allow LLC investing. Many big brokerages permit LLCs to trade investments, but usually, you’ll need to share your Operating Agreement with them.

Take a look at brokerages such as Fidelity, TD Ameritrade, Charles Schwab, or Vanguard to find out what they need for investing through an LLC.

Property Development and Real Estate Investing via an LLC

LLCs are a popular choice for holding real estate and property development investments. Here’s why:

  • LLCs provide liability protection, which comes in handy, especially when you’re working on property development.
  • They keep your personal and business finances separate, which is crucial for real estate investments.
  • In certain states, you can set up a Series LLC, allowing you to divide your business into parts, each dedicated to a specific property you’re developing or managing.
  • Some specialized real estate portfolio providers also accept LLC investments, offering you a broad range of property types to invest in.

Certain specialized real estate portfolio providers also let you invest as an LLC, offering you broad exposure to different types of properties.

Costs and Tax Implications of an Investment LLC

Running an investment LLC comes with certain costs, such as:

  • The initial cost of forming the LLC may involve using a company formation service and paying state fees.
  • Ongoing expenses like Annual Reports, license renewals, permits, and possibly franchise taxes.
  • Accounting fees for handling tax returns.

As for taxes, running an investment LLC doesn’t typically result in paying more taxes than if you were investing on your own. Here’s why:

  • Investment returns and other income earned by the LLC “pass-through” to each member’s tax returns based on the ratios outlined in the Operating Agreement.
  • Taxes are paid as usual on the earnings reported on each member’s tax returns.
  • However, investment LLCs can’t benefit from the 20 percent tax reduction introduced by the Tax Cuts and Jobs Act because holding investments in an LLC isn’t considered operating a business.

It’s Easy to Start an Investment LLC

Here at Bizee, we’re pros at helping you kickstart your investment LLC, and we make the entire process quick, easy, and painless. Here’s what you’ll need to do:

  • Collect details about all the owners/members who want to join the LLC.
  • Pick out a unique business name for your investment LLC.
  • Provide an official address.
  • Appoint a Registered Agent for the LLC.
  • Submit Articles of Organization to formally establish your LLC.

For more details, we’ve got handy state-by-state guides to walk you through starting an LLC.

You’ll also need to draft your Operating Agreement. We’ve got a guide to crafting a standard LLC Operating Agreement, and we suggest consulting with a lawyer about structuring the investment sections. Once you’ve put the agreement together, it needs to be approved and signed by anyone making investments through the business.

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