Legal Question in Business Law in California

Re: CEO compensation of new LLC

The operatING agreement need not have specified CEO salary. It sounds like you might want to first and foremost consult an accountant.

Re: CEO compensation of new LLC

You could set up a normal salary and have the LLC owe it to you while it becomes profitable enough to afford the salary. If you are lending the LLC the money to survive in the beginning days, you can then pay yourself back, with interest, and hold back the salary until the LLC can afford it and the loan is paid up.

Re: CEO compensation of new LLC

Have the LLC pay you back for your outlay of funds to startup the business.

Re: CEO compensation of new LLC

Keep in mind that an LLC is, or at least by election can be, a pass-through entity for income tax purposes. If you own, for example, 50% of the LLC, then for every dollar of expense it incurs, you get 50c of tax deductions while it is unprofitable, or reduced tax liability after it is profitable.

You need to do some pro-forma profit and loss schedules for business planning purposes, and carry them through beyond the "bottom line" to your own pro-forma tax return. Get some help from a CPA if you need it.

I think you will see that whatever you pay yourself, it will have minimal impact on your personal taxes.

By the way, if you own only 50% but are incurring 100% of the investing burden, make sure the LLC gets some kind of commensurate value from the other owner(s).

In the long run, I believe companies are better off to pay owner-managers based on something near market value for their services than to use an artifically low number. If that has a serious impact on cash flow, the owner-manager should reinvest part or all of the salary. Run the numbers and see if there is a tax consequence or not. If there is, it's likely to be the self-employment tax and medicare rather than the basic income tax that gets triggered. At age 65, you may be glad you contributed to those funds while setting up your LLC.