Selling an LLC

January 8th, 2009
  • What are the legal steps (from beginning to end) of selling a single member LLC to another single member LLC? (Willing to give a hefty tip for lots of help, this is my first time posting on here, so a bit wary on how it all works)


  • Also note, I am a MA based LLC, and new owner will be AZ based. This is a small business based on webhosting, not much (if any physical property is involved)


  • Howdy rjarow-ga, Not to worry on the Answers process, as I or another researcher will make sure you are clear on everything. As I am reading it, what you really want to do is to not so much sell your LLC, but rather the business that your LLC runs, and in your specific case, you want to sell mostly your client list, plus some minimal physical property, a server perhaps. If you do things the way I am describing it could cut out all sorts of complications, but essentially accomplish what it appears you desire, that is, transfer your client base to another party for something of value. If there is a reason though, that you want to do exactly what you are describing, selling the LLC outright, to include the client base, please clarify as such. Thanks! Looking Forward, denco-ga - Google Answers Researcher


  • Well the new owner would like to continue using the name of the company, so I figured an entity sale would be the best? But if you believe this can be done easier the way you are describing, I am all ears! :)


  • Hello and thank you for your question. There are two aspects to selling an LLC 1. Combining the two LLCs so that the surviving entity gets legal ownership of the assets of the LLC that is going out of existence, and 2. Reporting any gain or loss on the sale for income tax purposes. For point (1), you should start by deciding how you want things to end up - - either the AZ LLC could become the new owner of the MA LLC and keep it in existence (in effect like a subsidiary of the AZ LLC), or the MA LLC could merge into the AZ LLC (so that the MA LLC goes out of existence and all its assets are in effect absorbed by the AZ LLC). Since you say the AZ LLC wants to continue using the name of the MA LLC, I agree that what you want is for the AZ LLC entity to become 100% owner of the MA LLC and keep it in existence. In other words, the AZ LLC or the individual owner of the AZ LLC (it doesn't matter who pays), will pay the owner of the MA LLC whatever purchase price has been agreed on. In exchange, the owner of the MA LLC will sign over ("assign") ownership of the MA LLC to the AZ LLC. ------------------------------- Footnote: if you were merging the MA LLC into the AZ LLC and putting the MA LLC out of existence, that would be accomplished by a Plan of Merger as described in AZ Law: ARIZONA LIMITED LIABILITY COMPANY ACT Article 7, Section 29-752 Procedure for merger or consolidation; exchange http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/29/00752.htm&Title=29&DocType=ARS Article 7, Section 29-757 Effects of merger or consolidation http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/29/00757.htm&Title=29&DocType=ARS ------------------------------- Since we're keeping the MA LLC in existence, the one other thing that's needed is to make sure it is qualified to do business in AZ (since that's where it's now going to be located). Actually the consequences of failing to register the MA LLC in AZ are not so bad, 29-809 Transaction of business without registration http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/29/00809.htm&Title=29&DocType=ARS but there's a whole article under AZ law that tells how to register it properly and probably the buyer should take the trouble to do it right: Article 9 Foreign Limited Liability Companies 29-801 Law governing foreign limited liability companies http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/29/00801.htm&Title=29&DocType=ARS 29-802 Certificate of registration; application http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/29/00802.htm&Title=29&DocType=ARS 29-803 Registration of foreign limited liability company; certificate of registration http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/29/00803.htm&Title=29&DocType=ARS 29-804 Name of foreign limited liability company http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/29/00804.htm&Title=29&DocType=ARS 29-805 Changes and amendments to foreign registration http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/29/00805.htm&Title=29&DocType=ARS 29-806 Requirement for statutory agent of foreign limited liability company http://www.azleg.state.az.us/FormatDocument.asp?inDoc=/ars/29/00806.htm&Title=29&DocType=ARS Also, you won't be surprised to learn that there are commercial agencies that will be glad to do all this for you, one of which is where I took the above links from: http://www.keytlaw.com/az/ars/arstitle29.htm So if following these steps is too much for you, they'd be happy to do it for you for a price. For Point 2, both LLCs are "disregarded entities" for tax purposes because they each have only one owner. That means that the seller simply reports the sale on the seller's personal income tax return, Form 1040, as if there were no LLC and the seller simply owned all the assets directly. That's how the IRS wants it, in fact they don't even want the LLCs to obtain taxpayer id numbers and they don't want the LLCs to file partnership tax returns Form 1065. "An LLC that has only a single member and is not required to be classified as a corporation will automatically default to the classification of disregarded entity. The disregarded entity files as a sole proprietorship and completes the appropriate schedules as part of the single owners Form 1040." http://www.irs.gov/businesses/small/article/0,,id=137016,00.html That's it, and really it's not as complicated as it might seem. Search terms used: Arizona LLC "uniform act" "disregarded entity" llc site:irs.gov Thanks again for letting us help. Google Answers Researcher Richard-ga







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