Key Takeaways

  • LLCs cannot issue stock like corporations but can offer ownership interests to raise capital.
  • Series I Bonds are U.S. government savings bonds that offer inflation protection and fixed interest.
  • LLCs can purchase I Bonds in the entity’s name by creating a TreasuryDirect account.
  • There is an annual I Bond purchase limit of $10,000 per entity, including LLCs.
  • I Bonds must be held for at least one year and cannot be redeemed penalty-free until after five years.
  • I Bonds cannot be purchased through retirement plans like IRAs or Solo 401(k)s.
  • Buying I Bonds through an LLC may help diversify company reserves with low-risk, inflation-indexed returns.

LLC Stock

Limited liability companies (LLC) give debt securities in the form of a bond that would be like an LLC stock, which is used to attract financing and is issued through an investment bank that specializes in debt instruments. An LLC has a legal structure as both a partnership and corporation. Identification as a corporation is for tax purposed only. State LLC statutes have slight variations from state to state, but no state allows an LLC to issue stocks like that of an S- or C- corporation which are the only companies permitted to do so. The system of bond issuance has more of a complex structure than that of issuing a stock share.

As an LLC, the company has the option for taxation on the level of a corporation or with the owner's tax returns like a partnership. The rules and exact structure in each state for creating an LLC can vary, but generally, it's a simple process. The process, in a majority of cases, involves paying a fee and submitting a little paperwork.

After the establishment of an LLC, its ownership is defined by proprietorship. Dividing the ownership interest is flexible. Different owners can have:

  • Different profit splits
  • Different voting rights
  • Various capital contributions

An operating agreement must be adequate to dictate how all the interests get structured precisely. The LLC raises money by reallocating the percentage ownership to the adjusted rates for its owners. No new bonds are required. The LLC just needs to change the operating agreement and accept the capital.

In a case when the LLC is going to get sold, it can be sold as a whole entity without requiring assets to be transferred individually. The bank accounts and existing tax ID can remain the same. It's different for partnerships and sole proprietors. If these entities were to sell the entire company, the assets would need to be sold individually and would require the creation of the company with new identification and bank accounts.For the formation of a business entity, the available options are immense. In addition to corporations and LLCs, there are also partnerships that come in various forms, S-corps, C-corps, and much more. With each option comes different ways for how an owner pays taxes and protects himself or herself against liability, and different characteristics for owner rights.

If an owner is unsure of what decision is best, a tax attorney or accountant can provide valuable advice and guidance.

Can an LLC Invest in I Bonds?

While an LLC cannot issue stock in the traditional corporate sense, it can invest in assets like U.S. government bonds, including Series I Bonds. These bonds are attractive due to their dual interest structure—offering a fixed rate plus a variable rate tied to inflation.

The U.S. Department of the Treasury allows business entities, including LLCs, to purchase I Bonds directly through TreasuryDirect.gov. To do this, the LLC must:

  • Create a TreasuryDirect account in the business's name.
  • Use the LLC’s Employer Identification Number (EIN) rather than a Social Security Number.
  • Provide documentation verifying the LLC’s legal existence and authority of the person opening the account.

Annual Limits on I Bonds for LLCs

LLCs are subject to the same annual I Bond purchase limits as individuals—up to $10,000 per calendar year per entity through TreasuryDirect. This limit is per EIN, meaning each separate LLC can purchase its own maximum allotment.

Important considerations:

  • I Bonds must be held for at least 12 months before redemption.
  • If redeemed within the first five years, the LLC forfeits the last three months of interest.
  • These bonds are not transferable and cannot be purchased on behalf of an LLC through a retirement account like a Solo 401(k) or self-directed IRA​​.

Tax Implications of I Bonds for LLCs

Interest earned from I Bonds is subject to federal income tax but is exempt from state and local taxes. For LLCs:

  • Single-member LLCs (disregarded entities) may report bond interest on the owner’s tax return (Schedule B, Form 1040).
  • Multi-member LLCs must report interest income on the partnership return (Form 1065), and members reflect the income on their respective K-1s.

Interest is typically reported in the year the bond is redeemed, unless the LLC elects to report annually.

Why LLCs May Choose I Bonds

LLCs looking for a safe, low-risk investment for excess cash may consider I Bonds due to:

  • Protection against inflation.
  • No market risk since they are backed by the U.S. government.
  • Ability to diversify cash reserves.
  • Tax deferral until redemption or maturity.

However, I Bonds are not suitable for short-term liquidity needs due to the 12-month lock-in period.

Limitations of Using I Bonds in an LLC

There are some limitations LLCs should keep in mind:

  • Only one TreasuryDirect account is allowed per EIN.
  • I Bonds cannot be used as collateral or transferred to another entity.
  • Purchase limits apply regardless of the LLC's cash reserves.
  • Cannot be held in traditional or self-directed retirement plans.

These restrictions should be factored into any investment or reserve strategy.

What Is the LLC Ownership Structure?

A small group of people or a single individual can own the company under the limited company structure. The owners are known as members. An arrangement of private ownership — an LLC business structure hallmark — prevents the issuing of stock by limited liability companies.

LLC statutes can vary to a degree, but the requirement for LLC members to have equal rights tends to align with all state laws. Usually, member investments in the LLC come with an ownership stake commensurate. However, it is not necessary that members financially invest to get an ownership stake. A "sweat equity" is acceptable, which could come as legal or other representation professionally.

What Do Corporations and Shareholders Receive with Stock Shares?

A shareholder's ownership interest in the business is directly related to the number of shares issued to a particular owner and the total amount of outstanding shares. Most states permit the free transfer of stock certificates by the shareholders. The buyer of assigned shares of stock receives all financial and voting rights.

With hopes to receive investment funds or increase capital, business owners consider a broad range of options. Disappointingly, some entrepreneurs hope to make more money by issuing stock, only to find that shares of stock are usually only issued by corporations.

Companies keep at least half of all outstanding stock shares in many cases, which prevents external entities from being able to take over the corporation. Investors receive an ownership interest in a company when corporations sell stock. The company gets a financial investment in exchange. The organization can use it for:

  • Expansion
  • New employees
  • Additional equipment
  • Product development
  • Running the business otherwise

Frequently Asked Questions

  1. Can an LLC buy I Bonds?
    Yes, LLCs can purchase up to $10,000 in I Bonds annually through a TreasuryDirect account using their EIN.
  2. Are I Bonds for LLCs a good investment?
    They can be a solid, low-risk option for holding cash with inflation protection, especially for long-term reserves.
  3. Can I Bonds be purchased through an LLC’s retirement plan?
    No, I Bonds cannot be purchased through self-directed IRAs or Solo 401(k)s.
  4. How are I Bonds taxed for LLCs?
    Interest is subject to federal tax only and is typically reported when the bond is redeemed, though an LLC can elect to report it annually.
  5. Can multiple LLCs owned by the same person each buy I Bonds?
    Yes, each LLC with a unique EIN can separately purchase up to $10,000 in I Bonds annually.

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