If your spouse participates materially in your limited liability company, you may be wondering if it is a good idea to make your spouse a member or partner of the LLC. Likewise if you currently do not have an LLC but plan to set one up, you may be wondering if you should set it up with your spouse. Doing so is often a good idea, but it does depend on your particular situation and comfort level.
Avoid the Issue of Personal Liability
If your spouse participates in the business, it is possible that his or her role is murky. For example, is he or she an independent contractor, employee or general partner? Distinctions can be important. A spouse who generally works in a role like that of an independent contractor might be found personally liable if he or she is sued later on in relation to the work performed. Personal liability matters because one big point of setting up a LLC is to disavow your personal liability. However, if your spouse is found personally liable for something, both of you could lose property, money and other items held in your spouse’s name or in both of your names, so if your spouse participates materially in the business, it is a good idea to make him or her a LLC member. Also, if your spouse participates in public interaction on behalf of the LLC, it is a good idea to set up the company with him or her.
It often makes financial sense to add a spouse as a LLC member when the spouse works for the business in some capacity. For example, an employee spouse means that your LLC is required to pay unemployment insurance, workers’ compensation insurance and more. It also means that your LLC must follow federal and state laws for minimum wage. If you neglect to do this, it is possible the Internal Revenue Service could pursue your business for unpaid obligations. When you set up a LLC with your spouse, he or she can do work for the business without anyone having to worry about these financial considerations. It is often better for the bottom line of the business.
When your spouse owns any of the property you use in a LLC, you should include your spouse as a LLC partner. For instance, say that your spouse owns several cars that you plan to use in the business. For reasons of liability and taxation, it is best to include your spouse in the LLC.
Minimal Business Involvement
If your spouse helps out with your business only sporadically and does not get paid for any work, he or she is probably fine as far as personal liability goes. However, the property ownership rule above still applies. In addition, you may want to go ahead and add your spouse to the LLC in case the situation changes. For example, say that your spouse is a teacher, and it is summer break. All of a sudden, your spouse is helping out a lot more with the business. The potential for personal liability is suddenly apparent.In a nutshell, it is frequently a good idea to set up a LLC with your spouse. It provides much peace of mind as far as personal liability goes and is a proactive step toward situations where a previously nonparticipating spouse all of a sudden steps in to help with the business. If your spouse is being paid for his or her work with the business, helps out often and/or is otherwise heavily involved with your LLC, then it is pretty much essential that you add him or her to the company. One good thing about setting up a LLC with a spouse is that your spouse can do as little or as much work as the both of you agree on.
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