1.     Management   The formation of the structure may make management of a project under control of the LLC easier than if it wasn't in the LLC.  If there are a ton of people in the business, then the establishment of a legal entity will force the appointment of a select number of people to manage the business.  It doesn't matter whether you use an LLC or corporation, the management issue has about the same outcome.  Obviously, the question of using an LLC to do stock trading is not an issue on the management front, because you're the one doing the trading.

2.     Tax Considerations   A company has a different tax status than you do as an individual.  There are many things a company can do with taxes that an individual can't do.  The company can lower your adjusted gross income.  There isn't much you, as an individual, can do to affect your adjusted gross income directly, but everything your company does either raises or lowers your adjusted gross income.

Using an LLC to trade stocks will produce only passive income.  There isn't a lot of equipment or other things that a company can "deduct" from the trading business that you can't deduct as an individual.  You certainly wouldn't want to use a C corporation to do your day trading, because the only way you could "recover" the money out of the C corporation would be through a wage or a dividend, and so that would mean higher taxes.  Therefore, if you use a corporation or an LLC to trade stock, you would want it to be a "pass-through" entity.  Using an S corporation, a partnership or a sole proprietorship to trade stock will accomplish the pass through  OR  you could use an LLC to trade and have the LLC taxed as a sole proprietorship (disregarded entity), partnership (if more than one person) or an S corporation.  I would probably use the LLC for day trading, if I used any entity.  The tax advantages won't be huge, so if the cost or pain of having and maintaining an LLC is high, then forget about using an entity to trade.

3.     Asset Protection   Asset protection isn't a big deal in day trading.  You could lose your ass-ets, but nobody is going to sue you.  The only exposure you have is the money you are trading.  So, there is no need to use an LLC to do day trading for asset protection purposes - at least not from the "company" liability standpoint.

Having said that, it could be a good idea to use an LLC to do day trading, if your trading account is bigger.  An LLC has the unique ability to protect the assets of the company (the trading account) from your personal liabilities.  For example, if you get sick and have to declare personal bankruptcy, a properly established and maintained LLC would protect the trading account from that bankruptcy.  You could declare personal bankruptcy and not lose the trading account.  If you already have an LLC and operating agreement, you can use my operating agreement package, LLC Wizard, to beef up your current LLC. It's cheap protection if the account is big. A corporation can't protect the trading account from your personal liabilities.  There is no need to use a corporate legal structure to trade with.  Your structure, if you establish one, has to be an LLC.  BUT, you can have the LLC taxed any way you want.  The IRS doesn't recognize a specific tax structure for LLCs, so you can choose how to tax it.  In the case of day trading, just have your LLC taxed as a sole proprietorship (assuming only one owner) and use your Social Security number for the tax ID in the company.

Good luck on the trades!

Lee Phillips, JD