I’m going to join an already established LLC owned by a friend and a partner. How does liability for an LLC work? If I own 5% of the LLC what is my personal responsibility (tax and otherwise) if the company makes say $1k. What about if the company ends up owing $1k? The LLC is based in New York, but I live in Pennsylvania, does this complicate things and if so how? Also, the eventual goal is to get venture funding. How difficult is it to move to a C-corp? What about an S-corp? (What’s the difference? I didn’t really understand a difference from reading Wikipedia)
With an LLC, the company doesn’t actually make any money (tax-wise). Instead, the income that the company makes flows through to you. For example, if your company makes $1k and you have a 5% share, you add $50 to your tax return and to your tax return only. Losses flow through the same way, basically.
As for company debts, you’re not personally liable for them.
I’m not sure about venture funding, but generally, S-Corps are better than C-Corps. The difference between them is that you’ll generally get double taxed with a C-Corp (company pays tax on its income, then you pay tax on what you receive from the company), while S-Corps have the same flow through as LLCs.
Restrictions on S-Corps include:
-shareholder limit (~100, depends on state laws I think)
-can’t be owned by corporations, partnerships and trusts, only individuals and estates