Is it illegal for an owner to take ALL of the profit from a business he/she owns outright?

Is is illegal for a sole proprietorship that owns a LLC(one member llc treated like a SP) to take all the profit for its product sales?


Example: Bob s.p.o. owns Bob Fisheries LLC.

Bob Fisheries has only one owner and that is Bob s.p.o.
Bob Fisheries sell the Cheesy Fish Dinner product.
Bob s.p.o. pockets all of the profit(after expenses) for every sale of "Cheesy Fish Dinner".
Bob s.p.o. pays out of pocket to keep Bob Fisheries LLC open.
If someone sues Bob Fisheries since its a LLC it has liability protection from damages and legal suits.

Is this illegal?

Nope.

No. You should reinvest i the company to help it grow, but you don't have to.

Just pay your taxes and you can do what ever the hell you want.

This is America.

reply to post by DarthMuerte


Thank you for your response.

Will the IRS penalize you for doing this?

reply to post by John_Rodger_Cornman


Are you basically asking "If a person creates and LLC as a means of being able to avoid civil liability 100%?" then the answer is "No."

If Bob is found against in court, then LLC doesn't protect him simply because he pocketed 100% of the proceeds from the LLC".

In my understanding of it, LLC is meant to protect a larger parent company from undo civil liability incurred by a lesser subsidiary.

~Heff

Originally posted by John_Rodger_Cornman
reply to post by DarthMuerte

 

Thank you for your response.

Will the IRS penalize you for doing this?

You will just pay more in taxes, isn't that penalty enough?

reply to post by John_Rodger_Cornman


If Bob is the only owner of an LLC you might want to question his motives for doing so. Especially if he has no employees. Typically an LLC is a group of people who go in together in a business deal because of the way it is structured and because of the tax benefits. This will vary from state to state. It will also prevent lawsuits against each individual member, (As an LLC is considered to be a legal entity of it's own) either from someone outside the company or from another member, because of alleged financial improprieties. In other words, one member of an LLC cannot sue another member. He has to sue the LLC itself, which he is a part of.

You might want to ask Bob if he knows what he's doing.

Sounds to me like that's where your question is coming from. If Bob had other partners and he did what you stated in the OP, then yes, the other members could hold Bob liable for pocketing all the profits when they should have been distributed to the other members per the stipulations in the contract.

Your question is rather vague on details.

www.thellcexpert.com...

business-law.freeadvice.com...

Is Bob a nice guy? If he is, then your talking about him taking his own money without a parachute, risking it, paying employees,taxes, expenses rewarding and sharing the hard working, and then after it's all said and done he get's to choose how he see's fit to spend or invest his profits?

That guy Bob? AFTER he pays his taxes he can vote on how the taxes are spent correct? He can agree to disagree how're they're spent, but after Bob pays into the system, He's out of the decision loop. Correct? Elected officials will then decide Bob's contribution. That's why we hired errrr elected them correct?

Unless it's up for a vote of course. Then we all decide how to spend money collectivly. Correct?

I say Bob should have a good accountant to make sure he invests and manages his earned income wisely.

He deserves it and earned it. After ALL expenses,That's BOB'S money. Correct?

He put in the risk and hours.

reply to post by Taupin Desciple


One member is not going to sue another member. Its if an outside party sues Bob Fisheries. Does it protect Bob s.p.o. from legal liability?

I was asking if a Sole propreitor can use a created LLC(with employees, personel, a board) as a legal buffer agianst lawsuits,takeovers,etc.

SP - don't pay corporate tax (or state income state if your in texas,tennesee or florida) are easier to start up and keep track of.

LLC - limit legal liablity if sued.

Trying to eat cake and have it at the same time.

I was saying to get a good accountant to answer financial questions that could effect your bottom line.
LLC's, Proprietorships,Etc are not a question to ask on ATS.
After you know and understand how much of your company you want to share or HAVE to share or keep, you can make a good decision.
SharkTank comes to mind. They throw money around that show like they don't have 5 million pre watchers for the product.
That's the ONLY reason they throw money around on that show like they do. They already presold interest in the product. Brand Recognition.
Just sayin.
Yeah, I know a little bit about launching new products and how to effectivly split the pie, or try and finance your idea as a Sole Proprietor.
Good Luck.

The trick with a LLC is to not show a profit, this minimizes the tax liability.

This is done by allowing the company to pay for everything possible within the rules.
I own a frame shop, (one employee, me) if I have dinner and discuss the design elements of the frames with my guest, that's a business related dinner. You just have to keep EVERY receipt.
You can charge your LLC rent. You can charge for mileage on your vehicle.
With these expenses covered, you can pay yourself less in actual paychecks.
At the end of the year, if you're lucky enough to have a cash surplus, buy something for the company.

But it's worth it to let a professional file for you. Using a CPA will keep you out of trouble as long as you follow some simple rules.

reply to post by tanda7


Probably going to start a SP soon. I just don't want to get sued then have to pay out of pocket for legal fees.

One good thing. Getting sued in the industry I am working in is rather slim and the operating expenses are VERY small. There is pretty much no overhead either.

Originally posted by John_Rodger_Cornman
reply to post by tanda7

 

Probably going to start a SP soon. I just don't want to get sued then have to pay out of pocket for legal fees.

One good thing. Getting sued in the industry I am working in is rather slim and the operating expenses are VERY small. There is pretty much no overhead either.

edit on 7-10-2012 by John_Rodger_Cornman because: (no reason given)

The accounting aspect of the LLC is very easy. And the main legal benifit is the separation it creates between you and your company. Let's say my frame shop loses an important piece of art, My company would be liable for the replacement value, not me.
If the co. is unable to satisfy the liability and a lawsuit resulted, then my company would be completely exposed but my personal property and assets are safe.
Once you reach a certain level, insurance must be considered.
There is an art to classifying assets.

Also, if you have more than one type of service/product, you can list separate DBAs to put distance between different areas of income.

reply to post by tanda7


I guess so but I am the only person.

There are no other members.

As I said the industry I work in I am probably not going to get sued.

reply to post by John_Rodger_Cornman


Well, your scenario is intersting, but not complete, we need to know if Bob is leaveing anything in the business accounts to run the company, what Bobs income and Paid out salary is, does he pay his taxes correctly etc

I recently opened an LLC. I could have chosen to make my company a sole proprietorship(one owner, who is reaponsible for the business regardless)
But I didnt I chose to become an LLC, because if anythng should ever happen(goddess forbid) and my company get sued, I would not lose my home, and all of my personal property, the only property affected would be the property owned by the business. Since my company is based on property I own personally, about all they could take is the building,a and some machinery, and the building would have to be physically removed from the property.

As for "Bob" taking all of the profit from his product sales, of course its legal, he owns the company, anything that comes into the company in the way of profit can be distributed any way he sees fit, as long as his taxes are paid correctly etc.

Ive opened several businesses, none of them have been in the same form, some were corporations, some sole proprietorships, some LLC's it all depends on the type of business and what you intend to do with it.
An LLC is only a form of protection for the owners personal belongings in the event of being sued, there is no legal obligation to pay anyone anything who is not associated with the LLC, except for taxes that is.

I am the sole owner of my LLC, and sole board member, and as a result-ALL profits after expenses will be paid to ME, and no one else, as I have no employees. And yes its legal.

Originally posted by John_Rodger_Cornman

One member is not going to sue another member. Its if an outside party sues Bob Fisheries. Does it protect Bob s.p.o. from legal liability?

No. It limits how a person can get sued. In this case, the LLC would get sued, not the owner. They may be one in the same, but not from a lawsuit standpoint.

I was asking if a Sole propreitor can use a created LLC(with employees, personel, a board) as a legal buffer agianst lawsuits,takeovers,etc.

That's typically why people form LLC's. Real Estate especially.

- limit legal liability if sued.

Yes. It limits the legal liability. Hence the name Limited Liability Company. It doesn't do away with it altogether. Anyone can sue you for anything they want. There isn't a business structure in the world set up that insulates you from that. Unless you're the President of course.

Trying to eat cake and have it at the same time.

Then don't so anything illegal, keep every bit of paperwork your business produces whether you think it's relevant or not, and keep both a good lawyer and tax accountant on retainer.

The best way to have your cake and eat it too is to keep your kitchen locked up tight.

reply to post by Rossa


FINALLY~!

a straight answer! thx you Rossa.

What is embezzlement? Are there any simple things that can get me time in the penitentiary or fined.