LLC Readiness for Commodity

B

bhf

Ok, you guys know I posted questions related here before.

Now a LLC is setup, 5 members. Operation agreement drafted and can be signed. We are close friends so it is VERY UNLIKELY we will sue each other for 10K's sake.

So what else I need to do to legally able to trade commodities/currencies and their options in-and-out, year-round, and happily pay our tax without government showing up at the front door?

Shall the LLC elect "trader status"?
Can all profit be passed through to the members? (Assuming there is profit)
The typical 2%+20% will be paid to me from the profit and taxed as ordinary income, while the rest can be distributed as dividend?

Thanks in advance for everybody's comments.
 
Quote from bhf:

Ok, you guys know I posted questions related here before.

Now a LLC is setup, 5 members. Operation agreement drafted and can be signed. We are close friends so it is VERY UNLIKELY we will sue each other for 10K's sake.

So what else I need to do to legally able to trade commodities/currencies and their options in-and-out, year-round, and happily pay our tax without government showing up at the front door?

Shall the LLC elect "trader status"?
Can all profit be passed through to the members? (Assuming there is profit)
The typical 2%+20% will be paid to me from the profit and taxed as ordinary income, while the rest can be distributed as dividend?

Thanks in advance for everybody's comments.
More...

Sounds like you'll be pooling the money and since you are trading futures, you'll need to file an NFA exemption and a form D with the SEC. You'll also need to provide required documents to each of the other LLC members.

Any reason you chose to form as an LLC?
 
Landing, thanks for your comment. Yes the LLC has obtained NFS exemption but I was not aware of form D. For a fund that only offers commodity and futures products does it also required to file form D? I will research and look into it.

Also, do you know is there an election of trader status for a LLC?

LLC is formed for the reason of solving the taxing issues and liability issues. Without forming an identity it seems not likely able to trade pooled money and distribute profits.

Quote from Cache Landing:

Sounds like you'll be pooling the money and since you are trading futures, you'll need to file an NFA exemption and a form D with the SEC. You'll also need to provide required documents to each of the other LLC members.

Any reason you chose to form as an LLC?
More...
 
Quote from bhf:

Landing, thanks for your comment. Yes the LLC has obtained NFS exemption but I was not aware of form D. For a fund that only offers commodity and futures products does it also required to file form D? I will research and look into it.

Also, do you know is there an election of trader status for a LLC?

LLC is formed for the reason of solving the taxing issues and liability issues. Without forming an identity it seems not likely able to trade pooled money and distribute profits.
More...

Yes, there is nothing necessarily wrong with the LLC. A limited partnership is more the industry standard, but LLC are becoming more common from what I hear.

Anyway, the form D has to do with SEC regulations. The only reason that the SEC even cares about you in this case is because you're pooling the funds.

If you are trading commodities mainly, then you'll not want to claim mark to market or anything like that, unless you think you are going to lose money. You'll want to maintain 1256 contract benefits if possible.
 
LLC by default taxed as LP anyway, profit/loss are pass-through.
Good point about the 60/40 tax benefit. And I think I will make sure form D is filed.

Thanks again for the insightful comments.

Quote from Cache Landing:

Yes, there is nothing necessarily wrong with the LLC. A limited partnership is more the industry standard, but LLC are becoming more common from what I hear.

Anyway, the form D has to do with SEC regulations. The only reason that the SEC even cares about you in this case is because you're pooling the funds.

If you are trading commodities mainly, then you'll not want to claim mark to market or anything like that, unless you think you are going to lose money. You'll want to maintain 1256 contract benefits if possible.
More...
 
Quote from bhf:

LLC by default taxed as LP anyway, profit/loss are pass-through.
Good point about the 60/40 tax benefit. And I think I will make sure form D is filed.

Thanks again for the insightful comments.
More...

No prob. These are just the basics, so make sure you have all the bases covered.
 
To Landing, and every one else,

Is there any registration or notification requirement for New Jersey where the LLC is organized and operates?
 
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