How to Buy Stocks on Behalf of an LLC | The Motley Fool (2024)

FAQs

How to buy stocks on behalf of an LLC? ›

Setting up an LLC for investing is a safe way to build a group of investors and take advantage of the liability protection and tax benefits given to LLCs. Investing as an individual brings added risks to your personal finances and leaves you solely responsible for raising the money to invest.

A limited liability company (LLC) cannot issue shares of stock. An LLC is a business entity structured to have either a single or multiple owners, who are referred to as the LLC's members.

Tax Advantages

By being taxed as a pass-through entity, an LLC avoids corporate income tax and only pays personal income tax on any stock investment profits or capital gains. Another option is to elect to be taxed as a corporation, which may benefit from lower corporate tax rates than individual tax rates.

We generally recommend that active traders conduct their active trading business in a legal entity (usually an LLC).

Venture capitalists can't invest in LLCs because of stockholder rules. Some investors, such as venture capital funds, can't invest in pass-through companies such as LLCs, because the VC fund has tax-exempt partners that can't receive active trade or business income due to their tax-exempt status.

The management flexibility, tax benefits and protection of personal assets offered by LLCs make it a great vehicle for investment opportunities. Since there can be more than one member, it's often the business entity of choice when multiple people are looking to invest in something as a group.

If an LLC is listed as a C Corporation, the LLC must file corporate income taxes. In 2022, the federal corporate income tax rate is 21%, with many states adding their own taxes on top of that. Along with the corporate income tax, any profits or dividends distributed to members are subject to capital gains tax.

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Mark Roussin, CPA has positions in AbbVie, Alphabet, Coca-Cola, Microsoft, Prologis, and Visa. The Motley Fool has positions in and recommends Alphabet, Chevron, Home Depot, Microsoft, NextEra Energy, Prologis, and Visa.

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The short answer: Limited liability companies (LLCs) do not have stock, nor can they issue stock. While corporations that issue stock have corporate shareholders or stockholders, LLCs have membership interests, sometimes referred to as membership units, that confer an ownership stake on members.

Whereas LLCs cannot issue stock or preferred shares, a corporation can issue both common and preferred shares. Preferred stocks include: The rights of a preference in dividends. The preference in receiving company assets should the business be liquidated.

LLC Options

An LLC option is a contractual right held by the grantee to purchase a capital interest in the LLC at a fixed price in the future. Unlike corporations, LLCs cannot issue "incentive stock options." There is no final guidance from the IRS on how compensatory nonqualified options of an LLC will be treated.

Just like an individual, an LLC can invest in the stock market. Unlike using an LLC to invest in real estate, opening a brokerage account for investing in stocks, bonds, ETFs (exchange-traded funds) and mutual funds comes with significantly less risk to your personal assets.

If the business in question is a sole proprietorship, a partnership, or a limited liability company (LLC), the transaction cannot be structured as a stock sale since none of these entity structures have stock.

Stocks and Bonds

Your stockbroker, the issuing company, or a designated transfer agent will need to register these assets in the name of the LLC. If you have a stockbroker, the stocks may be held in a “street name account,” a brokerage account in the LLC name with the actual stocks held in the brokerage company's name.