If you own an LLC, you may be curious about the prospect of buying and selling stocks through the corporate structure, rather than doing so on an individual basis. But is this possible? And if so, how should you go about it?
The Basics of LLC Ownership
First, you’ll need to have an LLC in place. In case you aren’t familiar, an LLC is a limited liability company, a type of legal structure for your business that bridges the gap between a corporation and a partnership. LLCs are treatedas distinct legal entities, so they provide some degree of liability protection to their owners. Their expenses and income are trackedseparately, so they can be taxed either as a corporation,or on an individual basis when an LLC owner takes a salary or withdraws profits from the company.
The rules for LLCs vary by state, and some are more favorable to business owners than others. For example, in Delaware, the process for creating and managing an LLC is relatively easy, which is why more than half of all publicly traded companies are incorporated in Delaware.
Why Would an LLC Want to Buy and Sell Stocks?
It’s certainly possible for an LLC to buy and sell stocks, but why would it want to?
There are a few possible motivations:
- Using company assets.An LLC will have its ownbank account, with its ownledger for revenue and expenses. If an individual was so inclined, they could use company funds without withdrawing them—and possibly facing a tax on that withdrawal. Of course, any money you make in the stock market with LLC funds will also be subject to tax when an individual withdraws it, so plan carefully before following this plan.
- Shielding an individual from losses.LLCs that lose money on a stock may be able to write that loss off,or counteract gains from other stocks. It’s also a way to shield an individual partner from the possibility of a capital loss.
- Establishing a secondary source of income for the business.If an LLC purchases stocks or ETFs that pay regular dividends, they could be treated as a secondary source of business income. If your LLC is especially volatile, with inconsistent income, this could serve to stabilize your financial models.
How to Do It
So what do you have to do, as an LLC owner, to buy and/orsell stocks on behalf of the company?
- Check the operating agreement. All LLCs must have a central operating agreement, so your first task is reviewing that agreement to see if buying and selling stocks is allowed. Your operating agreement may explicitly forbid or allow it. If you wish to overturn or add something in the operating agreement, you’ll need to consult with the other partners of the company before you make that change.
- Declare a party responsible for buying and selling stock. In the operating agreement, you may also need to designate a party who’s responsible for and authorized to buy and sell stock on behalf of the company. You may distribute these rights to all LLC partners, or just one, as you see fit.
- Create a new business account or hire a broker.Next, you’ll need some kind ofvehicle that you can use to carry out a purchase. You can hire a professional broker to do this, but brokers can be expensive. You can also sign up for a business account using almost any major brokerage platform.For example, TD Ameritrade offers business accounts that can be used to buy stocks on behalf of an LLC, and their fees are relatively low.
- Purchase assets with company funds. From there, you’ll need to use a company account to disperse funds that you can use to buy your first stocks. If you don’t already have a business bank account (which you should, if you have an LLC), now is the time to create one. You can sell stocks the same way, once you own some.
If you’re just interested in buying and selling stocks for personal gain, there probably isn’t much of an incentive for you to create an LLC around that purchase. But if you already have an LLC and you have a good reason for the business to invest, it could be a wise decision. Make sure you remain in full compliance with your operating agreement and invest wisely to maximize your gains.