Alternative Structures for Life Sciences Companies: The LLC Holding CompanyWilmerHale
Explores the following:
- Establishing the LLC Holding Company
- Benefits and Drawbacks of Using the LLC Holding Company Structure
- Timing Considerations
Alternative Structures for Life Sciences Companies: The LLC Holding CompanyWilmerHale
Explores the following:
- Establishing the LLC Holding Company
- Benefits and Drawbacks of Using the LLC Holding Company Structure
- Timing Considerations
CTKnowledgeShare: CT Corporation is dedicated to educating our customers on the most current and essential topics for corporate legal and compliance professionals.
Here we are trying to list the taxation and accounting implications for a typically Demerger of companies.
The Implications are studied for Resultant and the Demerged Company
There are many people creating new entities in order to protect their assets and liability. This small presentation of running an S-Corporation has been provided to offer some "Basic" understanding of certain requirements that are often overlooked when choosing the S-Corporation entity type.
Residential property can be a lucrative business, but profits or gains will be subject to tax. In this post we discuss some of the property tax planning options, including using limited companies or LLPs, trading vs investment property, capital gains tax and entrepreneurs relief.
American Incorporators has been helping businesses incorporate for more than 35 years. Here, we break down the pros and cons of the most common business entities: C-Corporations, LLCs and S-Corporations.
CTKnowledgeShare: CT Corporation is dedicated to educating our customers on the most current and essential topics for corporate legal and compliance professionals.
Here we are trying to list the taxation and accounting implications for a typically Demerger of companies.
The Implications are studied for Resultant and the Demerged Company
There are many people creating new entities in order to protect their assets and liability. This small presentation of running an S-Corporation has been provided to offer some "Basic" understanding of certain requirements that are often overlooked when choosing the S-Corporation entity type.
Residential property can be a lucrative business, but profits or gains will be subject to tax. In this post we discuss some of the property tax planning options, including using limited companies or LLPs, trading vs investment property, capital gains tax and entrepreneurs relief.
American Incorporators has been helping businesses incorporate for more than 35 years. Here, we break down the pros and cons of the most common business entities: C-Corporations, LLCs and S-Corporations.
Solution Manual Advanced Accounting Chapter 15 9th Edition by BakerSaskia Ahmad
Solution Manual, Advanced Accounting, Thomas E. King, Cynthia Jeffrey, Richard E. Baker, Valdean C. Lembke, Theodore Christensen, David Cottrell, Richard Baker, Advanced Financial Accounting, Advanced Financial Accounting by Baker Chapter 18, Advanced Financial Accounting by Baker Chapter 18 9th Edition, 9th Edition,
Equity Incentives for Limited Liability CompaniesDaniel Janich
This slide presentation reviews the options available to limited liability companies in providing equity incentives to their employees, and how limited liability companies should develop a program for maximum effectiveness. This presentation was given at the NCEO Annual Conference in Atlanta April 9, 2014.
Entrepreneurs will face a huge number of decisions as they move from concept to commercialization. One of the
first major decisions is what type of legal entity to form in order to move their great ideas forward. Why does it
matter? Because different entities have very different rules regarding limited liability, management and control
flexibility, capital structure, tax efficiency and eligible investors.
A.) TrueFalse1 A distribution from a corporation will be .docxrhetttrevannion
A.)
True/False
1
A distribution from a corporation will be taxable to the recipient shareholders only to the extent of the corporation’s E & P.
2
All distributions that are not dividends are a return of capital and decrease the shareholder’s basis.
3
All cash distributions received from a corporation with a positive balance in accumulated E & P at the beginning of the year will be taxed as dividend income.
4
A distribution in excess of E & P is treated as capital gain by shareholders.
5
The terms “earnings and profits” and “retained earnings” are identical in meaning.
6
Regardless of any deficit in current E & P, distributions during the year are taxed as dividends to the extent of accumulated E & P.
7
In a property distribution, the amount of dividend income recognized by a shareholder is always reduced by the amount of liability assumed by a shareholder.
8
Business reasons, and not tax incentives, constitute the primary motivation for most corporations to form a conglomerate and file tax and financial accounting reports on a consolidated basis.
9
A consolidated Federal income tax return may be the product of a merger of the affiliates, or another corporate combination.
10
The consolidated return rules are designed to allow a tax-neutral means by which to elect to file on a consolidated basis.
11
Most of the Federal consolidated income tax return rules are found in detailed sections of the tax Regulations.
12
When the parent acquires 51% of a subsidiary U.S. corporation, the subsidiary can join the consolidated financial statements and the consolidated tax return of the parent.
13
A consolidated Federal income tax group must meet the eligibility requirements of the Regulations on the first day of the first year for which the election to consolidate is effective, and then on the last day of every succeeding tax year.
14
The right to file on a consolidated basis is available to a group of corporations when they constitute a “parent-subsidiary affiliated group.”
15 A partnership is an association formed by two or more taxpayers (which may be any type of entity) to carry on a trade or business.
16
A limited partnership (LP) offers all partners protection from claims by the LP’s creditors.
17
The taxable income of a partnership flows through to the partners, who report the income on their tax returns.
18
Jack and Jill formed the equal JJ Partnership during the current year, with Jack contributing $100,000 in cash and Jill contributing land (basis of $60,000, fair market value of $40,000) and equipment (basis of $0, fair market value of $60,000). Jill recognizes a $40,000 gain on the contribution and her basis in her partnership interest is $100,000.
19
Section 721 provides that no gain or loss is recognized on a contribution of property to a partnership in exchange for an interest in the partnership. An exception might apply if the taxpayer receives a cash distribution from the partnership .
In 2020, the Ministry of Home Affairs established a committee led by Prof. (Dr.) Ranbir Singh, former Vice Chancellor of National Law University (NLU), Delhi. This committee was tasked with reviewing the three codes of criminal law. The primary objective of the committee was to propose comprehensive reforms to the country’s criminal laws in a manner that is both principled and effective.
The committee’s focus was on ensuring the safety and security of individuals, communities, and the nation as a whole. Throughout its deliberations, the committee aimed to uphold constitutional values such as justice, dignity, and the intrinsic value of each individual. Their goal was to recommend amendments to the criminal laws that align with these values and priorities.
Subsequently, in February, the committee successfully submitted its recommendations regarding amendments to the criminal law. These recommendations are intended to serve as a foundation for enhancing the current legal framework, promoting safety and security, and upholding the constitutional principles of justice, dignity, and the inherent worth of every individual.
ALL EYES ON RAFAH BUT WHY Explain more.pdf46adnanshahzad
All eyes on Rafah: But why?. The Rafah border crossing, a crucial point between Egypt and the Gaza Strip, often finds itself at the center of global attention. As we explore the significance of Rafah, we’ll uncover why all eyes are on Rafah and the complexities surrounding this pivotal region.
INTRODUCTION
What makes Rafah so significant that it captures global attention? The phrase ‘All eyes are on Rafah’ resonates not just with those in the region but with people worldwide who recognize its strategic, humanitarian, and political importance. In this guide, we will delve into the factors that make Rafah a focal point for international interest, examining its historical context, humanitarian challenges, and political dimensions.
DNA Testing in Civil and Criminal Matters.pptxpatrons legal
Get insights into DNA testing and its application in civil and criminal matters. Find out how it contributes to fair and accurate legal proceedings. For more information: https://www.patronslegal.com/criminal-litigation.html
RIGHTS OF VICTIM EDITED PRESENTATION(SAIF JAVED).pptxOmGod1
Victims of crime have a range of rights designed to ensure their protection, support, and participation in the justice system. These rights include the right to be treated with dignity and respect, the right to be informed about the progress of their case, and the right to be heard during legal proceedings. Victims are entitled to protection from intimidation and harm, access to support services such as counseling and medical care, and the right to restitution from the offender. Additionally, many jurisdictions provide victims with the right to participate in parole hearings and the right to privacy to protect their personal information from public disclosure. These rights aim to acknowledge the impact of crime on victims and to provide them with the necessary resources and involvement in the judicial process.
Car Accident Injury Do I Have a Case....Knowyourright
Every year, thousands of Minnesotans are injured in car accidents. These injuries can be severe – even life-changing. Under Minnesota law, you can pursue compensation through a personal injury lawsuit.
WINDING UP of COMPANY, Modes of DissolutionKHURRAMWALI
Winding up, also known as liquidation, refers to the legal and financial process of dissolving a company. It involves ceasing operations, selling assets, settling debts, and ultimately removing the company from the official business registry.
Here's a breakdown of the key aspects of winding up:
Reasons for Winding Up:
Insolvency: This is the most common reason, where the company cannot pay its debts. Creditors may initiate a compulsory winding up to recover their dues.
Voluntary Closure: The owners may decide to close the company due to reasons like reaching business goals, facing losses, or merging with another company.
Deadlock: If shareholders or directors cannot agree on how to run the company, a court may order a winding up.
Types of Winding Up:
Voluntary Winding Up: This is initiated by the company's shareholders through a resolution passed by a majority vote. There are two main types:
Members' Voluntary Winding Up: The company is solvent (has enough assets to pay off its debts) and shareholders will receive any remaining assets after debts are settled.
Creditors' Voluntary Winding Up: The company is insolvent and creditors will be prioritized in receiving payment from the sale of assets.
Compulsory Winding Up: This is initiated by a court order, typically at the request of creditors, government agencies, or even by the company itself if it's insolvent.
Process of Winding Up:
Appointment of Liquidator: A qualified professional is appointed to oversee the winding-up process. They are responsible for selling assets, paying off debts, and distributing any remaining funds.
Cease Trading: The company stops its regular business operations.
Notification of Creditors: Creditors are informed about the winding up and invited to submit their claims.
Sale of Assets: The company's assets are sold to generate cash to pay off creditors.
Payment of Debts: Creditors are paid according to a set order of priority, with secured creditors receiving payment before unsecured creditors.
Distribution to Shareholders: If there are any remaining funds after all debts are settled, they are distributed to shareholders according to their ownership stake.
Dissolution: Once all claims are settled and distributions made, the company is officially dissolved and removed from the business register.
Impact of Winding Up:
Employees: Employees will likely lose their jobs during the winding-up process.
Creditors: Creditors may not recover their debts in full, especially if the company is insolvent.
Shareholders: Shareholders may not receive any payout if the company's debts exceed its assets.
Winding up is a complex legal and financial process that can have significant consequences for all parties involved. It's important to seek professional legal and financial advice when considering winding up a company.
How to Obtain Permanent Residency in the NetherlandsBridgeWest.eu
You can rely on our assistance if you are ready to apply for permanent residency. Find out more at: https://immigration-netherlands.com/obtain-a-permanent-residence-permit-in-the-netherlands/.
Introducing New Government Regulation on Toll Road.pdfAHRP Law Firm
For nearly two decades, Government Regulation Number 15 of 2005 on Toll Roads ("GR No. 15/2005") has served as the cornerstone of toll road legislation. However, with the emergence of various new developments and legal requirements, the Government has enacted Government Regulation Number 23 of 2024 on Toll Roads to replace GR No. 15/2005. This new regulation introduces several provisions impacting toll business entities and toll road users. Find out more out insights about this topic in our Legal Brief publication.
2. Presenters
2
Kevin R. Learned
Mr. Learned is a founding partner of McMahon, Welch and Learned, PLLC, a law
firm in Reston, Virginia that specializes in representing small and mid-sized federal
services contractors. Mr. Learned’s practice focuses on advising clients on
general corporate and securities matters, including company formation
and governance, buy-sell agreements, operating and stockholder agreements,
mergers and acquisitions, private offerings of debt and equity securities (including
friends and family, angel, venture capital and private equity investments), corporate
divorces and other reorganizations, joint ventures, small business
certifications (including 8(a), SDVO, WOSB, HUB Zone and MBE/DBE
certifications), executive employment and equity matters, deferred compensation
plans, franchise agreements, trademarks, and other commercial contracts and
agreements.
3. Presenters
3
Aman Badyal
Mr. Badyal counsels his clients through numerous forms of
transactions and legal decisions including choice of entity, entity
formation, private placements, executive compensation, section
1031 exchanges, the formation or restructuring of complex joint
ventures, and corporate mergers and other reorganizations. His
practice includes both domestic and cross-border transactions.
He also has extensive experience representing clients in tax
audits and other controversies and has been an adjunct
professor at the Thomas Jefferson School of Law.
4. Entities Generally
4
Entities (creature of state law)
Sole Proprietorship
General Partnership
Limited Partnership
Corporation
Limited Liability Company
Note that the type of entity does not
necessarily tell you the tax treatment
5. Liability Generally
5
Sole Proprietorships and General
Partnerships have unlimited liability for
owners
Limited Partnerships, Corporations and
LLCs all provide liability protection for
owners as owners, assuming corporate
form is respected
Note that owners are still responsible for their
own actions.
6. Tax Overview
6
Partnership
(Including GP, LLC, LP, LLP)
S Corporation C Corporation
Income Taxed once at the partner level Taxed once at the shareholder level Taxed at the corporate level and again at the
shareholder level when distributed (no
preferential rate for capital gains)
Losses Pass-through to each partner to the
extent of partner’s basis (incl.
partner’s share of third party debt)
Pass-through to each partner to the
extent of basis in stock and
shareholder loans to corporation
Deductible to the corporation
Tax on Sale of
Interest/Stock
Capital Gain except to the extent of
section 751 Hot Assets
Capital Gain Capital Gain
3.8% Net
Investment
Income Tax
A partner’s distributive share of NII
is subject to the tax
A shareholder’s share of NII is subject
to the tax
Dividends received by shareholder are subject to
the tax
Payroll / Self-
employment
Taxes
Yes, unless the partner can be
treated as a “limited partner” under
section 1402(a)(13)
Salary is subject to payroll tax;
however, S Corp must pay reasonable
compensation
Salaries are subject to payroll taxes (subject to
reasonable compensation limit, taxpayers are
incentivized to maximize salary to minimize
double taxation)
Sharing Profits Most flexible entity for sharing
profits
Single class of stock requirement Can have multiple classes of stock with varying
distribution and liquidation preferences
Distributions Distributions of cash and
marketable securities in excess of
outside basis are taxable. Other in-
kind distributions generally not
taxable (but see section 751).
Taxable to the extent (i) of any built-in
gain on distributed property and (ii)
FMV of property distributed exceeds
shareholder’s stock basis.
Taxable to the extent (i) of any built-in gain on
distributed property, (ii) of amounts treated as
dividends, and (iii) FMV of property distributed
exceeds amount treated as dividends and
shareholder’s stock basis.
7. Affordable Care Act
7
Increased the Medicare portion of self-employment taxes from 2.9%
to 3.8% on earnings in excess of $250,000 for married taxpayers
filing jointly ($200,000 in the case of single taxpayers).
Imposed a 3.8% tax on the lesser of (i) Modified Adjusted Gross
Income in excess of $250,000 for married taxpayers filing jointly (or
$200,000 in case of single filers) or (ii) Net Investment Income.
Net Investment Income is equal to the sum of:
gross income from interest, dividends, annuities, royalties, and rents, unless
those items are derived in the ordinary course of a trade or business;
gross income from (i) a section 469 Passive Activity or (ii) a business which
involves trading financial instruments or commodities; and
Net gain from the disposition of property not held in connection with an active
business (other than a financial trading business).
8. Limited Partner Exception to Self-
Employment Taxes
8
Section 1402(a)(13): “[T]here shall be excluded [from self-
employment taxes] the distributive share of any item of income or
loss of a limited partner, as such, other than guaranteed payments”
and other payments for services.
There is no definition of “limited partner” in section 1402.
Proposed Regulations Section 1.1402(a)-2 (1997)
Renkemeyer: Tax Court held that the income of partners in a law firm
organized as an LLP was subject to self-employment taxes because
it “arose from legal services [the taxpayers] performed on behalf of
the law firm” and not “as a return on partners’ investment.”
Can members of an LLC be treated as limited partners for purposes
of section 1402?
Due to the 3.8% rate of Medicare taxes on income above $250,000 effective
January 1, 2013, this question is of increased significance.
9. State Tax Law Considerations
9
Some jurisdictions tax S Corps like C
Corps
Some jurisdictions require additional
filings beyond the federal filing
Some jurisdictions assess additional
taxes/fees
10. Ownership Restrictions (LLCs)
10
LLCs are the most flexible with respect to
ownership structure
Voting interests versus non-voting interests
Different classes of membership interests
Priority distributions among members
Allocations can differ for various business units
Terms of Operating Agreement can override
most statutory default provisions
Most business terms you can think of, you
can accomplish with an LLC
11. Ownership Restrictions (C Corps)
11
C Corps are similar to LLCs in their
ownership flexibility, but are more
structured
Voting and non-voting stock
Multiple classes of stock (i.e., preferred stock)
Unlike with LLCs, difficult to separate
economic benefits from stock ownership
12. Ownership Restrictions (S Corps)
12
S Corps are the most restrictive
Single class of stock
In general, only warm bodies and certain trusts
can be stockholders
US residents only
Limited number of owners (100)
However, you can have different voting
rights
13. S Corp Issues – Second Class of
Stock13
Reclassification of certain arrangements
as a second class of stock
Safe Harbor for Warrants/Options
1.1361-1(l)(4)(iii)(C): An option is not a second
class of stock if, on the testing date (i.e., the date
it is issued, transferred, or materially modified),
the strike price of the option is at least 90 percent
of the fair market value of the underlying stock on
that testing date
14. S Corp Issues – Transfer
Restrictions14
Transfer restrictions to avoid
impermissible ownership
Designed to avoid inadvertent loss of S Corp
status
May need a court order to void transfers
Not allowable if prohibited from placing conditions
on ownership (e.g., SDVOSB and 8(a) programs)
15. Management (LLCs)
15
As with ownership, LLCs are the most
flexible with respect to management
Manager managed versus member managed
Board of managers or individual managers
Can have officers appointed by the manager(s)
Terms of Operating Agreement can override
most statutory default provisions
Most business terms you can think of, you
can accomplish with an LLC
16. Management (C Corps and S
Corps)16
S Corps and C Corps are more structured
Must have a board of directors
Must have officers
Must have annual board and stockholder
meetings
More rights statutorily reserved for stockholders
17. Tax on Sale of Entity –
Partnerships and Section 75117
Section 751 - Gain from the sale of a
partnership interest can be taxed as ordinary
income to the extent the gain is attributable to
Unrealized Receivables or Substantially
Appreciated Inventory of the partnership.
Substantially Appreciated Inventory: If
Partnership’s inventory has aggregate FMV
greater than 120% of its adjusted basis.
Anti-Stuffing Rule
18. 338(h)(10) Election
18
Gain from the sale of corporate stock is generally
taxed to the shareholder as capital gain.
If an election is made under either section 336(e) or
338(h)(10), the sale of the stock may be
recharacterized as a sale of corporate assets by the
target corporation followed by a liquidation of the
target corporation.
Provides the purchaser stepped-up basis in the
corporation’s assets.
Useful when Target is an S Corporation
Look out for: section 1374 built-in gains taxes; inside
versus outside basis differentials; ordinary income assets.
19. 336/338 Requirements Compared
19
338(h)(10) 336(e)
Joint election required by seller and buyer Joint election required by seller and target
Seller must be a member of a
consolidated group or a nonconsolidated
affiliated group, or target must be an S
corporation
Seller must be either a domestic
corporation or S corporation shareholder
Single acquirer must generally be a
corporation
Can have multiple acquirers, which are not
required to be corporations
Requires taxable purchase of 80% or
more within a 12-month period
Requires any combination of sales,
exchanges, and distributions totaling 80%
or more within a 12-month period
20. Conversions – Overview
20
Corporation to LLC
Full taxable transaction.
Treated as if corporation contributed its assets to the new LLC and distributed the
LLC interests to its shareholders. Transaction is taxable to both the corporation
(section 311(b)) and the shareholders (section 331).
Partnership/LLC to Corporation
Taxation depends on the form of the transaction.
Assets Over – LLC transfers all of its assets and liabilities to corporation in
exchange for stock; LLC distributes stock to its members in liquidation.
Assets Up – LLC distributes all of its assets and liabilities to its members in
liquidation, members contribute assets and liabilities to corporation in exchange
for stock.
Interests Over – LLC members contribute LLC membership interests to
corporation in exchange for stock; LLC is liquidated.
Formless conversions under state law or under the “check-the-box” rules will be
treated as Assets Over transactions.
21. Conversions – Basic Fact Pattern
21
A & B own converting entity equally (in case of
partnership/LLC, any debt is also allocated
equally).
A & B each have $100 outside basis in the
converting entity equity interests.
The converting entity owns a single capital
asset with a fair market value of $400,
adjusted basis of $160 and a fully recourse
liability of $200.
22. Conversion of Corporation to LLC
22
Corp LLC
Step 1
Step 2
Assets
Liability
Interest in LLC
LLC
Corp Shareholders
Corp distributes interests
in LLC to its
shareholders
Corp
Final Members
LLC
23. Corporation to LLC Conversion
23
Step 1: Corporation transfers its assets and
liabilities to LLC in exchange for membership
interests
Nontaxable.
Step 2: Corporation distributes membership
interests to its shareholders (A&B).
Corporation is taxable as if it sold the membership
interests for FMV. Corporation recognizes $240 gain.
Shareholders taxed on the difference between their
stock basis and the fair market value of the property
they receive.
25. Partnership to Corporation – “Assets
Over”
25
Step 1: PS contributes Asset to new corporation.
Though this transaction qualifies as a section 351 transaction, because the corporation is
assuming liabilities in excess of adjusted basis (i.e., liabilities are $200 and adjusted basis
is $160), section 357(c) requires that PS recognize $40 of gain.
PS’s basis in the stock is $0: The basis of the capital asset it contributed ($160) plus the
gain recognized ($40) less liabilities assumed by the corporation ($200). Section 358.
PS gets tacked holding period with respect to the stock. Section 1223(1).
Corporation does not recognize gain or loss on the exchange of Asset for stock. Section
1032(a).
Corporation’s basis in Asset is equal to $200: PS’s basis in Asset ($160) plus gain
recognized ($40). Section 362.
Corporation gets tacked holding period with respect to Asset. Section 1223(2).
A and B each have $20 basis in their PS interests following the contribution.
Step 2: PS liquidates.
PS recognizes no gain or loss. Section 731(b).
The receipt of the corporate stock should be nontaxable to A & B. Section 731(a).
A and B have $20 basis in their stock (section 732(b)) and get a tacked holding period (section
735(b)).
27. Partnership to Corporation – “Assets Up”
27
Step 1: PS distributes a 50% interest in Asset to each of A and B.
PS recognizes no gain or loss. Section 731(b).
The receipt of Asset should be nontaxable to A & B. Section 731(a).
A and B should each have $100 adjusted basis in their 50% share of Asset. Section 732(b)
PS liabilities assumed by the partners individually should offset the liabilities relieved as part
of the liquidation.
A and B should also receive a tacked holding period. Section 735(b).
Step 2: A and B contribute Asset to new corporation.
No gain or loss to A or B. Section 351. Liabilities do not exceed basis so section 357(c) does
not come into play.
A and B each have basis in the stock received of $0: Their basis in their share of Asset
contributed ($100) plus the gain recognized ($0) less liabilities assumed by the corporation
($100). Section 358.
A and B get tacked holding period with respect to the stock. Sections 735(b) and 1223(1).
Corporation does not recognize gain or loss on the receipt of assets. Section 1032(a).
Corporation’s basis in the asset is equal to $200: A and B’s aggregate basis in Asset ($200)
plus gain recognized ($0). Section 362.
Corporation gets tacked holding period with respect to Asset. Section 1223(2).
28. Entity Conversions – “Interests Over”
Incorporation of Partnership Rev. Rul. 84-111
28
P
Step 1
Final
Step 2
Interests in Partnership
Shareholders
Situation 3
Corp
Partners
Partners/Shareholders
Corp
Corp
P
29. Partnership to Corporation –
“Interests Over”29
Step 1: A and B each contribute their PS interests to new corporation.
No gain or loss to A or B. Section 351. Liabilities do not exceed basis so section 357(c)
does not come into play.
A and B each get a tacked holding period. Section 1223(1).
A and B each have $0 basis in the corporate stock: Their basis in their interests
contributed ($100) plus the gain recognized ($0) less liabilities assumed by the
corporation ($100). Section 358.
Corporation does not recognize gain or loss on the receipt of PS interests. Section
1032(a).
Corporation’s basis in PS interests is equal to $200: A and B’s aggregate basis in
their interests ($200) plus gain recognized ($0). Section 362.
Corporation gets tacked holding period. Section 1223(2).
Step 2: PS liquidates.
Corporation’s basis in Asset is $200: Corporation’s basis in the PS interests ($200) plus
gain recognized ($0). Section 732.
Corporation gets tacked holding period with respect to Asset. Section 735(b).
30. Entity Conversions – F Reorg
30
Old S
Corp
Shareholders
Stock Contributed
to New S Co
New S
Corp
Step 1
Step 2
New S
Corp
Old S Corp
(QSub)
LLC
Old S Corp is
merged or
converted into LLC
New S
Corp
Final
LLC
New Members?
31. Conversion – State Law
Considerations31
Don’t forget that type of entity is a creature
of state law
Not all states allow for entity conversion
Where conversion is not allowed, may need to
form a new entity and use a statutory merger
Keep up-to-date… Maryland recently adopted a
conversion statute effective October 1, 2013
32. Transferability of LLC Control Interests
32
§ 18-702(a) of the Delaware LLC Act:
A limited liability company interest is assignable in
whole or in part except as provided in a limited liability
company agreement. The assignee of a member's
limited liability company interest shall have no
right to participate in the management of the
business and affairs of a limited liability company
except as provided in a limited liability company
agreement or, unless otherwise provided in the
limited liability company agreement, upon the
affirmative vote or written consent of all of the
members of the limited liability company.
33. Transferability Requires Specificity
33
VA Supreme Court of Opinion, Ott v. Monroe
(http://www.courts.state.va.us/opinions/opnscvwp
/1101278.pdf)
The operating agreement at issue in Ott. v. Moore contained, among
other provisions, that “any Member . . . may transfer all or any portion
of the Member’s Interest at any time to … [o]ther Members [or] [t]he
spouse, children or other descendants of any Member.” (emphasis
added). The court held that neither this nor any other provision of the
operating agreement specifically permitted the transfer of control
interests without the consent of the other members.
If you want to allow non-economic interests to transfer, references to
“control interests”, “voting rights”, “participation in management and
affairs” or like phrases should be included in the provisions allowing
transfers of ownership interests.
34. Questions?
34
KEVIN R. LEARNED
MCMAHON, WELCH AND LEARNED, PLLC
703-483-2810
klearned@mwllegal.com
AMAN BADYAL
BADYAL LAW PC
619-500-4540
aman@badyallaw.com