Is Silent partner possible for s-corp

Asked about 1 year ago - Poughkeepsie, NY

We need to setup the s-corp with 4 partners. 2 of them are suppose to be silent partner without any day to day responsibility. Is it possible to distinguish the partners type in s-corp. We can not setup the LLC for variety of reason

Additional information

Just to clarify, by silent I mean no day to day responsibility, There is no need to hide the identity of the Silent partner.

Attorney answers (3)

  1. John P Corrigan

    Contributor Level 19

    3

    Lawyers agree

    Answered . I would be curious why an LLC was not feasible but an s-corp is as it may alter the answer being sought here. With that being said, your use of the word "silent partner" begs 2 questions in my mind:
    1. If you mean "silent" as in no day-to-day business operations then you will have no problem to solve for this as my colleagues already stated.
    2. Alternatively, if you mean "silent" in that no one will know the identity of the S/H then a much different problem and S/H agreement and tax return K-1's pose a problem.
    Perhaps you can add additional info on the two points raised to help you get more answers.

    My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a... more
  2. Phillip Monroe Smith

    Contributor Level 18

    4

    Lawyers agree

    1

    Answered . The simple answer to your question is yes. The more complicated legal answer is that there are no "partners" in an S-Corp. - only "shareholders." The S-Corp. can have both shareholders who are officers that are employed by the business and investors who only shareholders. Consult with an attorney to develop a shareholder's agreement, bylaws, and the appropriate minutes to accomplish the business objectives of all parties.

    Hope this helps!
    Phillip M. Smith Jr.
    Los Angeles Tax & Business Attorney
    Licensed in the United States Tax Court
    www.culvercitytaxandbusinesslaw.com
    www.corporateattorney.com

    THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can... more
  3. Robert John Murillo

    Contributor Level 20

    4

    Lawyers agree

    1

    Answered . My colleague Attorney Smith is absolutely correct. You could structure an S corporation this way, but you must be very careful to follow the S corporation requirements such as the one class of stock requirements (among others). If you violate the requirements the election is lost.

    You must speak with an attorney to advise the corporation and draft a shareholders' agreement. This is not an optional issue unless you want to make rather huge legal and tax mistakes. Good luck.

    This answer is for informational purposes only and is not legal advice regarding your question and does not... more

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