Closely-Held LLC

IRAs can invest in a multi-member partnership or LLC with their self directed IRA. It is important to understand the prohibited transaction and disqualified person rules when setting up an LLC. Learn more about IRS rules & important dates. Closely-Held LLCs can refer to an LLC or partnership in which a small group of people owns different types of investments. Some of the most common investments in an LLC include real estate and private notes.

Retirees hiking with family

Rules & Responsibilities With Closely-Held LLCs

  • Closely-Held LLCs offer a great deal of flexibility for IRA investors. Closely-Held LLCs include Single-Member LLCs, but we are talking about multi-member entities. However, there are additional responsibilities and rules surrounding these investments and set up of the entity.
  • All parties involved need to familiarize themselves with Prohibited Transactions Rules (IRC 4975). These rules are critical to avoid potential tax consequences. It is highly encouraged that you seek competent advice from an attorney or tax advisor. These professionals understand the rules related to investing your IRA into an LLC.
  • The IRA holder may not have the authority to sign LLC documents as the investor. Typically the IRA administrator will sign the original LLC or partnership subscription document, and the LLC manager will sign for the purchase of assets. Additional LLC capital contributions funded by the IRA at a later date may be prohibited. So it is essential to understand the IRA Rules.
  • Please note that the IRA owner must submit a valuation of the LLC to Midland on an annual basis. Valuation calculates all cash, brokerage, real estate, and other assets inside the LLC.

Documents Required Before Investment Funding

  • Private Placement Purchase Authorization
  • Private Investment Disclaimer & Indemnity Agreement
  • LLC/LP Acknowledgment Letter Initialed and signed by Managing Member or General Partner
  • LLC Documentation
    • Complete Operating Agreement
      Client to initial bottom right-hand corner of each page as “Read and Approved.” Midland executes the Operating Agreement on behalf of the IRA.
    • Schedule of Members
      • Must contain these elements:
        1. List of all investors (both IRA and non-IRA) to the Closely-Held LLC.
        2. For each investor, indicate the total amount of capital contributed.
        3. May also show the percentage of total ownership for each investor.
        4. Title IRA investor names as:
          Midland Trust Company as Custodian FBO Client Name, Client Account Number
          P.O. Box 07520 – Fort Myers, FL 33919
          Trust Tax ID: 47-5560347
      • Copy of State LLC Registration

The client must supply these documents to Midland by fax, email, or mail.