Introduction
Limited Liability Corporations (LLCs) are created to allow SWAN angels to invest with a funding amount (for example, $5,000) that is smaller than amount normally required of each investor in a start-up company (typically, a $25,000 minimum). The angels create the for-profit, corporation to invest in the start-up. The LLC collects investments from the LLC members (SWAN angels) and the LLC then makes a single investment on behalf of all the LLC members, thereby crossing the minimum investment thresh hold.
The LLCs are sometimes referred to as Special Purpose Vehicles (SPVs).
And although we refer to some of the LLCs as “SWAN” LLCs, each LLC is an independent, for-profit, Limited Liability Corporation (LLC) that has no legal connection with the non-profit SWAN Impact Network.
LLC Ownership and Operating Procedures
A member’s percent ownership of an LLC is normally determined by the member’s percentage of the total dollars contributed to the LLC by all members. Major LLC decisions typically require 67% of ownership to approve When an LLC makes a decision, the member may agree to make the decision binding on all members, even those who voted against the decision. For example, the members might decide to make a follow-on investment in a start-up, and to require all member to make their pro-rata contribution. Or the members can decide that participation in the follow-on is optional, which may then result in a change of members’ ownership percentages if some members don’t make the follow-on investment.
Each LLC identifies and pays an Administrative service-provider to handle pre-defined, specific tasks associated with operating the LLC. The administrator for LLCs created in 2019 through 2024 is the SWAN LLC Manager Inc. The administrator for LLCs created starting in 2025 is the Loon Creek Capital Group.
LLC Tax Filings
The Administrator’s responsibilities including filing Federal tax returns for the LLC. Each LLC makes an annual IRS tax filing ONLY if the LLC has had income or expenses in the tax year. The LLC files form 1065 for the LLC corporation and generates a K-1 form for each LLC member.
In a K-1 tax filings, the LLC’s income or expenses are passed down on a pro-rata basis to all the LLC members. The LLC members then include their pro-rata share of the income or expenses on their personal tax filings.
If the investment made an LLC has a change in value, and that change is not a realized gain or loss for the LLC, then 1065/K-1s are not triggered. By analogy, if you personally own stock in a public company and the the stock price goes up or down, you make no report to the IRS until you sell the stock and you realize a gain or loss.
For investments made via a self-directed IRA, the K-1 is issued to the IRA service provider, who becomes a member of the LLC.
Please see LLCs filing k-1 status for each LCC managed by the SWAN LLC Manager, Inc. The link shows, for each LLC, whether the LLC has filed 1065/K-1s during each of the last three years.