LLC Compensation - Explained
How Members are Compensated
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How are LLC Members Compensated?
Each member in an LLC is entitled to receive a share of profits based upon their ownership percentage. These profits are subject to personal income taxes.
If the LLC is taxed as a partnership, members are not able to receive a salary for their efforts for the company. If taxed as a corporation, members are required to receive a salary for their work for the company.
Back To: BUSINESS ENTITIES, CORPORATE GOVERNANCE, & OWNERSHIP
LLC Compensation: Member-managed vs. Manager-managed LLCs
A member-managed LLC is managed by the members of the LLC. A manager-managed LLC is managed by professional managers hired by the members. In some case, the professional managers will also be members of the LLC. The differences between these two management organizations go further than who is in control; it also includes differences in compensation methods and taxes.
As stated above, members in a partnership-taxed LLC do not receive a salary in exchange for their services. The is not true in a corporation-taxed LLC.
In a manager-managed LLC, the managers will receive compensation for their actions. If taxed as a partnership, this compensation will be in the form of a special allocation or draw on profits. The special allocation will be greater than the compensation they would receive as a non-managing member to account for their additional work and effort. The same can be true in a member-managed LLC if any member(s) contribute(s) more effort than other members.
- Business Entities (Intro)
- Why is studying business entities important?
- Considerations When Forming a Business Entity
- Holistic (Detailed) Overview of Setting Up a Business Entity
- What are Business Entities?
- What is a Closely-held vs Publicly-held Business?
What are the main types of business entity?
- What are the primary characteristics of business entities?
- What is Creation of a business entity?
- Where to Form a Business
- Incorporating in Delaware
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- Creating a Company Offshore
- Promoter Liability
- De Jure Corporation
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- What is Maintenance of a business entity?
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- Business Continuity Planning
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- Shotgun Clause
- Winding Up
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- What is the Ownership structure of a business entity?
- Joint Stock Company
- Parent Company
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- What is Control of a business entity?
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- Entity Theory
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- What is Compensation of business owners?
- What is Taxation of a business entity?
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- What are the major characteristics of a Sole proprietorship?
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- Tort Liability of General Partner
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- Family Limited Partnership
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- What are the main characteristics of a Limited liability partnership?
- What are the main characteristics of a Limited liability company?
- Forming an LLC
- Articles of Organization
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- Why You Need an LLC Agreement
- LLC Compensation of Members
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- Converting to an LLC
- What are the main characteristics of a Corporation
- Articles of Incorporation
- What to include in the Articles of Incorporation
- Corporate Bylaws
- Exiting the Corporation
- Dissenter's Rights
- What are the requirements to be an S Corporation?
- Non-Profit Organization
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- Private Foundation
- A Detailed Explanation of the Sole Proprietorship
- Taxation of Sole Proprietorship
- A Detailed Explanation of the General Partnership
- 50/50 Partnerships: Never a Good Idea
- Publicly-Traded Partnerships
- A Detailed Explanation of the Limited Liability Company
- A Detailed Explanation of the Corporation
- Keepwell Agreement (Letter of Comfort)
- Personal Service Corporation Definition
- A Detailed Explanation of the Non-Profit Entity
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