I have a lot of entrepreneurs asking me how they can legally transition from their existing partnerships into a new legal structure that will afford them greater protection from adverse claims.
This is easy because the existing assets and liabilities can simply be transferred to the new limited liability company. The transfer will not be a taxable sale therefore the business owners are not obligated to pay taxes as a result of the conversion.
It's really funny how in today's society entrepreneurs and small business owners are still missing the basics and still losing their shirts trying to create a better life for themselves and others. We start out on the wrong foot without the proper foundation and its amazing how, even with so much information, we miss the mark on the basics!
Episode 6 of the Secured Entrepreneur Show will be helpful to the entrepreneurs who haven't come under the protective umbrella of a legal entity yet.
The internal revenue service recognizes that converting a sole proprietorship or partnership into a limited liability company is a change in legal structure of an existing business and not a sale of assets from one business to another.
After you have converted your existing business to a limited liability company you will need to file the same tax returns that you filed prior to the conversion. If you are a sole proprietorship who converts into an LLC, you will file a 1040 Schedule C and if you have a partnership converting into an LLC, you would file a 1065 partnership tax return.
If you have a partnership, more than likely each entrepreneur has an equal percentage of capital interest meaning they have the same percentages of ownership. Let’s say its 50-50 so now all they have to do is prepare their operating agreement showing each individual having a 50% capital interest and a 50% share of the limited liability company profits and losses.
"Protecting Your Business Starts BEFORE You Open For Business"
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