THE LLC FREEZE          Roger Royse    Royse Law Firm, PC  1717 Embarcadero Road    Palo Alto, CA 94303E-mail: rroyse@rroy...
The LLC Freeze Structure           Freeze Point3500000030000000250000002000000015000000                                   ...
Alternative 1: No LLC Freeze                         Alternative 2: LLC Freeze                     Entrepreneur           ...
Alternative 1: No LLC Freeze                                                            Entrepreneur       Gross Value    ...
Alternative 1: No LLC Freeze                                                            Entrepreneur       Gross Value    ...
Alternative 1: The Sale                                                                  Entrepreneur   Amount Realized   ...
Alternative 1: The Taxes                                                                       Entrepreneur               ...
Alternative 2: The LLC Freeze                                                                      Entrepreneur        Gro...
Alternative 2: The LLC Freeze                                                            Entrepreneur       Gross Value   ...
Alternative 2: The Sale                                                                Entrepreneur   Amount Realized     ...
Alternative 2: The Taxes                                                                IRS                     Entreprene...
Summary Corporate Level Tax      20000000      18000000      16000000      14000000      12000000      10000000           ...
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The LLC Freeze

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The LLC Freeze

  1. 1. THE LLC FREEZE Roger Royse Royse Law Firm, PC 1717 Embarcadero Road Palo Alto, CA 94303E-mail: rroyse@rroyselaw.com www.rroyselaw.com www.rogerroyse.com Skype: roger.royse
  2. 2. The LLC Freeze Structure Freeze Point3500000030000000250000002000000015000000 No Freeze Freeze10000000 5000000 0
  3. 3. Alternative 1: No LLC Freeze Alternative 2: LLC Freeze Entrepreneur Entrepreneur C Corporation C Corporation (DE) (DE) Limited Liability CompanyEntrepreneur’s wholly owned C corporation develops an asset. Alternative 1: The asset keeps growing in the C corporation. Alternative 2: The asset is dropped into an LLC of which the entrepreneur is also a member.
  4. 4. Alternative 1: No LLC Freeze Entrepreneur Gross Value $5 M Inherent Gain $5 M Basis $0 C Corporation (DE)The asset remains in the C corporation.
  5. 5. Alternative 1: No LLC Freeze Entrepreneur Gross Value $50 M Inherent Gain $50 M Basis $0 C Corporation (DE)The asset continues to grow within the C corporation and is now worth $50 million.
  6. 6. Alternative 1: The Sale Entrepreneur Amount Realized $50 M - Basis $0 Taxable Gain $50 M $50 M Purchaser C Corporation (DE)The asset is sold to an unrelated party for cash, resulting in a $50 million taxable gain.
  7. 7. Alternative 1: The Taxes Entrepreneur IRS ($11.4 M) $32.5 M C Corporation ($17.5 M) (DE) $50 M Gain $50 million 35% Corporate tax ($17.5 million) 35% Individual Tax on remainder of C ($11.4 million) Corp.’s gain Amount remaining after all taxes $21.1 millionEntrepreneur must pay two levels of tax on the taxable gain because the asset was heldthrough the C corporation.
  8. 8. Alternative 2: The LLC Freeze Entrepreneur Gross Value $5 M Inherent Gain $5 M Basis $0 C Corporation The LLC Agreement: (DE) Status Capital Profit/Loss Account Allocation C Corp. Investor $5 M 1% Limited Liability Entrepreneur Service $0 99% Company ProviderWhile still small, the asset is dropped into an LLC. The C corp. takes a capital account equalto the asset’s value at contribution and takes a 1% profit/loss allocation.
  9. 9. Alternative 2: The LLC Freeze Entrepreneur Gross Value $50 M Inherent Gain $50 M Basis $0 C Corporation (DE) Limited Liability CompanyThe asset continues to grow within the LLC and is now worth $50 million.
  10. 10. Alternative 2: The Sale Entrepreneur Amount Realized $50 M - Basis $0 Taxable Gain $50 M C Corporation (DE) $50 M Purchaser Limited Liability CompanyThe asset is sold to an unrelated party for cash, resulting in a $50 million taxable gain.
  11. 11. Alternative 2: The Taxes IRS Entrepreneur ($1.1 M) ($102,375) $3.25 M $44.5 M ($15.59 M) $292,500 ($1.75 M) ($157,500) C CorporationGain $50 million (DE)35% Corporate tax (on pre-contribution value) ($1.75 million)35% Corporate tax (on C Corp.’s 1% of the $45 ($157,500)million post-contribution asset growth $5 M $450k Limited Liability35% Individual Tax on remainder of C Corp.’s ($1.1 million) Companypre-contribution gain (when realized)35% individual tax on remainder of C Corp.’s 1% ($102,375) $50 Mof post-contribution growth (when realized)35% individual tax on entrepreneur’s 99% of ($15.59 million)post-contribution asset growthAmount remaining after all taxes $31.3 millionUsing an LLC Freeze, 99% of post-contribution appreciation is subject to just one level of tax.
  12. 12. Summary Corporate Level Tax 20000000 18000000 16000000 14000000 12000000 10000000 No Freeze 8000000 Freeze 6000000 4000000 2000000 0An LLC Freeze halts nearly all corporate level tax without disturbing asset development.

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