Hello dear communitarians! I am wondering if any of you might have some insights or experience to offer.
About two and a half years ago, a dear friend, who I will refer to as C, and I formed a multi-member LLC as the legal entity for our communal household, allowing us to more readily share income / expenses / bank account. At the end of June, C and her son moved to another community, and another single mother, who I will refer to as R, and her four kids came to stay here at Magnolia.
Before she left, C and I decided that she would legally remain a member until the end of this year, to simplify the SCC and tax filing and “hold a place” for another member, since we are the only two members currently. Now that R and her family have been with us for a few months and are interested in staying longer, and the turn of the year approaches, the legal question of membership is proving a bit complicated.
When C’s membership officially ends at the close of 2023, it seems that my two options will be to either convert The Magnolia Collective to a single-member LLC for the time being, or for R to join as a member. Both have advantages and disadvantages, but it is hard for me to weight the options when the information out there is geared towards conventional businesses with very different aims than ours, who aren’t asking and answering the following questions. Hoping that perhaps some of you with experiencing using the LLC structure for intentional communities might be able to offer more guidance:
- Is it necessary to change Magnolia’s designation with the IRS from multi-member to single member LLC right at the start of the year, if I am then the only member, or can Magnolia continue to be a multi-member LLC, even if for part of 2024 I am the only member? We will likely have another individual joining us soon, who may be interested in pursuing membership after a few months. It might also simplify and place less time-pressure on the membership decision for R if we don’t need to worry about continually having more than one member.
If a “gap” in having multiple members does require converting Magnolia to a single-member LLC, is it possible, and practical (i.e. not a paperwork labyrinth nightmare), to convert a multi-member LLC to a single-member LLC and then back to a multi-member LLC in the same year?
- Is it possible for one member to claim 0% of profits from the LLC? One of our hesitations in having R legally become a member is that this might jeopardize the social services benefits her family depends on. Our income as a Collective is small and unpredictable, derived from my part-time contract work, and I know we can divide the “profit” percentage however we wish. So the concern is not that that the reported income would push her above the threshold, but that the having to declare and explain this income (since it would appear on a K-1 and need to be filed), might raise some eyebrows and complicate the application process . When Magnolia membership came up when C attempted to apply for benefits, it brought up so many questions and confusion and complication that she ended up dropping her application, even though the actual income she derived still fell below the threshold.
Thank you for taking the time to read, and any thoughts or ideas you care to share.