Sale of a SMLLC


D

David Samuel Barr

Last year one of my clients with a sole
proprietorship set up an LLC to handle
a portion of his business. As he is the
sole member, we treated it as a disregarded
entity for all purposes and reported it
on a second Schedule C in the client's
personal 1040 return and related state
& city returns.

This year, though, business developments
(including the bankruptcy of the LLC's
primary client) have caused him to
discontinue most of the activity in the
LLC.

One of his colleagues has offered to buy
the LLC from him. There really isn't
anything to sell, though, besides the
name, since the LLC never had any assets
besides cash (unless you count some
letterhead stationery), so a 4797 would
not be needed at any point. The LLC
never had any employees or any form of
payroll tax or related insurance
expenses or obligations, nor any debt
or other liabilities.

The question is, is there any point to
making this transaction a sale if the idea
is simply to give the colleague the name
and any goodwill (in the practical, not
accounting, sense) that may have accrued
to it? Can my client simply close his
LLC and his colleague set up his own LLC
under the same name? It's probably
important to note that the colleague is
in a different state, which would obviate
any regulations that might exist
restricting the use of a business name
by two entities in the same state. If
the colleague were still to make a payment
to my client in September for the "purchase"
of the name, wouldn't that simply be
treated as additional ordinary revenue to
the original LLC which would be treated
like any other client revenue received
during this calendar year at the end of
which the LLC would be closed?

Any insights would be welcome.
 
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