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Should you angel invest through an LLC?
Or invest as an individual via your SSN?
Gale Wilkinson
June 14, 2023
As angel investors, you have two primary options when investing in a deal:
—As an individual, via your SSN
—As an LLC of which you’re a member
Note that there’s a third option via a trust, but the majority of angels choose to invest as an individual or through an LLC, so we will focus on those two.
One of our VITALIZE Angels members asked our team about this recently, and I didn’t have a strong opinion so I went to Twitter and asked this:
Should you invest in angel deals as an individual via your SSN or via an LLC to limit liability?
I just received this question & would love to hear thoughts. I personally invest as an individual as I have never heard of a case where investors have liability (sometimes board members can have liability, but not the investors). If I am wrong, I would love to know!! TIA.
Although the sample size is small at ~25, the responses overwhelmingly came in LLC (75%) > individual (25%). Let’s look at what the respondents said about LLCs:
Pros: Liability protection, deduction of expenses related to investing, privacy on a cap table, and the ability to sell the investment in the future
Cons: There is a cost to manage an investment LLC (annual state filing fee), and it’s more of an administrative burden
I spent a lot of time reading about these pros and cons in various articles, and it’s not truly clear if a single-person LLC offers any further liability protection to an individual. I do think privacy and the ability to sell would be the biggest draws for me personally. And for small angels like myself, I’m not sure that those currently outweigh the cost and additional legal and financial burden that comes with an LLC. So the answer to the SSN vs LLC question isn’t as clear as I’d like it to be. Note that I am not a tax or legal professional, so please consult with your accountant and attorney about your personal situation!
Here are some of our favorite responses:
LLC With Another Person, Individual Otherwise
I’ve only invested through an LLC when I was investing with another person (relative, colleague, etc). Otherwise I’ve always angel invested as an individual.
— Startup Lawyer (@mgorb79)
3:32 AM • May 27, 2023
LLC For Liability Protection & More
LLC, for liability protection, expense management, protection of personal information and flexibility.
One of the biggest benefits of an LLC is that you can sell your equity without company approval by selling the LLC. It doesn't count as a transfer if they buy the entity.
— Sean Byrnes 🇺🇸 (@sbyrnes)
8:47 PM • May 26, 2023
LLC for Selling Shares & Warehousing
Entity.
Write off many expenses more easily, simplified sale if you have a break out investment you want to exit (just sell shares in your entity), easier to warehouse for a future fund, cleaner to show track record, SSN isn't floating around.
— Ben Metcalfe 🖤 benmetcalfe.eth (@dotBen)
8:05 PM • May 26, 2023
Caution On Being An LLC’s Sole Member
investing as an individual vs. as an LLC - if you are the ONLY member of the LLC - makes little to no difference in a court of law in any case where this would be an actual issue ('piercing the veil' is the legal term here)
— JJ Kasper (@JJ_Kasper)
8:04 PM • May 26, 2023
Disclaimer: this is not tax or legal advice; please consult with your accountant and attorney regarding your own situation.
Thanks for reading!
We want to address YOUR questions in these brief angel investing newsletters. Reply to this email or ping me on Twitter to let me know your burning questions on anything related to angel deals!!
Peace, love, and angel checks,
Gale