How to Create an LLC for Investments

By Cindy DeRuyter, J.D.

How to Create an LLC for Investments

By Cindy DeRuyter, J.D.

Limited liability companies (LLCs) are business entities authorized by each state's laws. LLCs are popular for many reasons, including ease of creation and protection for the members' (or owners') personal assets. Generally speaking, you can create an LLC for any legitimate reason, including investing. The process of creating an LLC for investments varies by state, but it follows the same steps needed to establish an LLC for other business purposes.

Man smugly smiling and holding tablet

Agreeing on Terms and Procedures

Families or groups of friends often choose to establish an LLC to pool their money for investment purposes; however, you could also choose to create an LLC for your own individual investments.

When creating an LLC together with others for the purpose of holding real estate or other investments, you can (and should) tailor the operating agreement to govern the group's investment activities. The operating agreement can include provisions specifying how or when a member can decide to sell their shares and leave the group, which can help protect the integrity of the group.

The operating agreement can also document the group's intentions and wishes for investing assets. For example, your investment group might decide to invest a certain percentage of assets in equities and a certain portion in fixed income, or to avoid certain type of investments altogether.

Documenting the plan in the operating agreement involves language that describes what constitutes an acceptable deviation from the plan, how often to rebalance the portfolio, and who is in charge of making investment trades can help ensure the LLC stays true to its stated goals.

Handling Taxes for Investment LLCs

LLCs are pass-through entities for tax purposes. This means that the business entity itself does not pay taxes at the company level; profits and expenses pass through to members proportionally according to the share allocated to each member in the LLC's operating agreement.

Before establishing an LLC to hold investments, you might want to talk to a tax professional who can advise you on how that decision might impact you and any family members or friends with whom you intend to invest through your new LLC.

Creating an LLC for Investments

After deciding on the LLC structure, you can begin the process of forming your LLC by following the steps outlined below.

  1. Choose a name for the company that is not already in use. Make sure your name is not misleading, and check with your Secretary of State or other business authority to confirm name availability.
  2. Follow your state's required procedure for creating a new LLC. This typically involves filing a formation document called "articles of organization" with a state authority and paying your state's required fees. In some states, you can choose to pay a higher fee to expedite your filing.
  3. Obtain a tax identification number (called an employer identification number, or EIN) from the Internal Revenue Service. You need to provide this number to any broker or investment adviser helping you purchase investments for the LLC.
  4. Draft the new LLC's operating agreement. Make sure the document accurately reflects the wishes of all of the investors.

An LLC can form for virtually any legal business reason, but it must abide by the laws of its state. If you want to organize an LLC to hold investments for a group of investors, make sure you agree on your wishes and approach to investing. Once you iron out the details, create your LLC according to state law.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.