The article below has been prepared by a tax attorney and Denver business attorney to discuss further the risk of losing S corporation status by abiding by an operating agreement. A means by which to invalidate the S corporation status, which many business owners may not consider, is the LLC operating agreement. Although an LLC converting to a Subchapter S corporation has benefits, such as potentially reducing self-employment taxes, these benefits may be mistakenly lost if the Subchapter S corporation status is invalidated. It is not rare for an LLC to eventually consider and perhaps decide to be taxed as an S corporation. Limited Liability Companies Conflict With An S Corporation Operating AgreementĪbiding by the LLC operating agreement may cause the entity to operate in a manner that invalidates the S corporation election.Īn LLC can be formed quickly and has a lot of flexibility regarding members, operations, and taxation structure.
1 Limited Liability Companies Conflict With An S Corporation Operating Agreement.
