4.
Re: LLC buying out other Member Mar 17, 2009 9:58 AM
in response to:
sandquad
Check with your attorney to find out if an asset purchase in a new entity would allow you to avoid successor liability. It might not.
Assuming you will keep the old entity and that the operating agreement allows for it, you can easily get a lawyer to do documents for the purchase. Otherwise, there might be additional documents and amendments to the operating agreement.
Whether the LLC is taxed as a partnership, S Corp or C Corp along with the details of the business's (sp?) tax situation will help determine whether you should buy their interests from them directly or contribute the money to the LLC and have the LLC redeem their interests.
If you are taxed as a partnership now, there will be two tax returns - A partnership through the buyout and a Schedule C on your 1040.
If a S Corp, you and the partners can agree to allocate the income/deductions as if there were two separate tax years - prebuyout at current allocation and postbuyout at 100% you, but all on one tax return. Otherwise, the default is an allocation of the full year based on the percentage of ownership multiplied by the percentage of the year that they owned shares. A 1/3 partner owning for 3 months (1/4yr) would be allocated 1/12 of the full year. => If the buyout was 3/31, they would each get 1/12 of the P&L and you would get 10/12's on the K-1s.
If a C Corp there is one tax return for the year, no matter what.
