Should I include my spouse as a owner of my LLC?

zaccopp1 LLC 4 Comments

What are the pros and cons to including my spouse as an owner of my new LLC? Since Texas is a community property state, won’t my spouse own 50% of my new LLC anyway?

You are essentially deciding between a single-member LLC and a multi-member LLC. Whether or not to include your spouse as a owner of your new LLC depends on his/her desired involvement. A single-member LLC (SMLLC) is much less complicated.

From a tax perspective, a SMLLC is considered a disregarded entity meaning the SMLLC’s profits are simply included on the owner’s tax return (federal tax return for the LLC is not required). A multi-member LLC is taxed like a partnership and thus a federal tax return (IRS Form 1065) is required. In Texas, an LLC that is owned by only a husband and wife, can elect to be taxed like a SMLLC. If for some reason partnership taxation is your desire, you can accomplish this by adding your spouse to your SMLLC.

From a liability perspective, a Texas LLC provides a liability barrier (between the business liabilities and owner’s assets) whether it is a single- or multi-member LLC.

From a management perspective, a multi-member LLC requires input from both owners. When the LLC takes an action, it should be documented that the owners authorized the action. With a multi-member LLC, the documentation becomes even more important. In addition to consent/authorizations, both members in a multi-member LLC are entitled to distributions of cash in the event a distribution is made.

Disclaimer: Do not take anything contained in this post to be legal advice about your specific situation. This post is not a substitute for legal advice.

Comments 4

  1. So, if I set up the LLC in the name of both husband and wife, I will have the option of electing tax treatment (as disregarded entity or partnership) in Texas?

    1. Post
      Author

      Correct. We normally include a resolution in the organizational meeting of a husband and wife owned LLC that authorizes single-member (disregarded entity) taxation, if that is the desired route. When applying for the federal tax ID (aka EIN) online via the IRS website, you will be asked which option you wish to to go with.

  2. There is a lot of confusion of this topic by CPAs and bank. And especially me..
    My husband and I filed our LLC certificate of formation with both of our names knowing we would select SMLLC when electing our tax option, which we did select when choosing our EIN. But now CPAs we’ve contacted and our Bank is telling us were a partnership not a SMLLC because there is two of us and it doesn’t matter that were in a community property state (Texas) and married. Are they correct and were wrong? If we are right, how is the best way to explain this election?

    1. Post
      Author

      A husband and wife LLC is allowed to elect a single-member (aka disregarded entity) tax classification. In the EIN Assignment Letter it should say “Sole Mbr” after the responsible party’s name at the top left corner. Please let us know if your banker and CPA ever came around.

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