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TexLaw
TexLaw, Attorney
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Experience:  Lead trial/International commercial attorney licensed 11 yrs
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I am considering taking over an LLC from the current members.

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I am considering taking over an LLC from the current members. Is there a legal way to make them responsible for any tax liabilities that may arise later on that are from their period of ownership?
Submitted: 1 year ago.
Category: Legal
Expert:  TexLaw replied 1 year ago.
Hi,

Thank you for your question. There is absolutely a way to structure the transaction that way. The agreement you will entering into is called a "Limited Liability Company Membership Purchase Agreement". In it you will lay out the terms of the agreement, i.e., that you are purchasing their memberships and ownership of the LLC for the set price and the date on which the transfer will occur. Then you should have a term which states:

"Sellers agree and warrant that they shall be liable for payment of any and all tax liabilities arising in connection with the LLC prior to the date of the transfer which are due from the LLC to an taxing authority. Upon receipt of any such qualifying tax bill, Buyer will present the bill to Sellers within 5 days of receipt. Sellers agree to pay said tax bill within 30 days of presentment, or prior to any deadline date that is required by the taxing authority, if shorter than 30 days. Seller shall also pay any and all fines or levies associated with the tax bill. Seller warrants and guarantees that it shall indemnify, save and defend Buyer from any demand, claim, and/or legal action connected with a qualifying tax bill (taxes due in connection with the LLC arising prior to the transfer date). If Seller does not pay the tax bill upon presentment from Buyer within the allotted, Buyer may chose to pay the tax bill and seek reimbursement from the Seller. If Buyer is required to pay the tax bill because of Seller's refusal to pay, Buyer shall be entitled to 5% interest on the amount paid, compounding per annum until paid in full."

Please let me know if you have further questions regarding this subject.

-ZDN
Customer: replied 1 year ago.

Do I understand correctly that this only gives me legal grounds to recover any expense on taxes I may be presented with later and not to make the previous owners directly liable? Also, what is the best way to get a "Limited Liability Company Membership Purchase Agreement" written?


 

Expert:  TexLaw replied 1 year ago.
No. This allows you to present the tax bill to them directly for payment. If they don't pay it within 30 days, you can pay it and charge them 5% interest, or you can sue them for enforcement of the agreement to pay.

A lawyer can draft such an agreement, but getting a lawyer to do it is only justified if you are talking about a large transaction (over $30K). Anything under really doesn't justify the legal expenses involved. I would look on legalzoom.com for a form that you can use for this transaction. After you have purchased the memberships, you will have to file an amendment to the certificate of formation with the Texas Secretary of State, which shows the beneficial ownership of the LLC has changed. This is a form that is available online at www.sos.state.tx.us

Please let me know if you have any further questions.

-ZDN
TexLaw, Attorney
Category: Legal
Satisfied Customers: 4164
Experience: Lead trial/International commercial attorney licensed 11 yrs
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