I understand the need for corporate formalities. My question has to do specifically with the Accounting or Bookkeeping aspects of the problem and how to record the movement of funds, assuming that all corporate formalities have been observed. I am not sure why a Lawyer is involved in answering this question
This is precisely the guidance that I was looking for. I have just one more follow up question relating to the last paragraph.
Would you suggest any thing different if TOM was not a sole owner but partnership and Tom(Jr) had discretionary powers to move funds.?
Best Regards- hari
That's a different situation if Tom & Tom(Jr) are equal partners. One way or another, Tom(Jr) has to approve the transaction.The other thing you need to understand, is that the amount of money you are talking about makes a difference. You can't just extrapolate the principals relayed here to all similar situations; things like the affect on the financial position of either LLC would enter into consideration. It wouldn't affect the accounting for the transaction, but it could easily affect the propriety of transferring funds between LLCs in the first place.Absent the historical knowledge of the actual specific situation and the parties involved, from my standpoint I'd much rather work with the actual factual situation that you are dealing with, rather than hypothetical examples that you (& only you) have determined parallel the actual situation you are really talking about.
In answering your follow-up question, the accounting wouldn't change, except that you wouldn't want to be running the transaction through the draw(s) accounts of a partnership, but rather your initial solution (b) would be more appropriate.Remember, in a partnership there is a separate income tax return for the partnership and a continuity in the tax reporting of partnership assets and liabilities (balance sheet) on the partnership tax returns (Form 1065), whereas with a sole proprietorship there is no such reporting for income tax purposes.Of course, it goes without saying, that if the ownership of the two LLCs involved were not the same, although the recommended accounting treatment wouldn't change, the propriety of cash transfers between the LLCs would add another whole set of considerations to the equation.
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Your response is thoughtful and much appreciated. I will mark my questions with the "Steve G" at the beginning when I call upon your services in the future. Thanks again
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