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Ask Lane Your Own Question
Category: Tax
Satisfied Customers: 10819
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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We have a California LLC. We are currently 50/50 owners, but

Customer Question

We have a California LLC. We are currently 50/50 owners, but we are planning to shift full ownership of the LLC to one of us.Questions:1. Are there any personal tax implications for either of us. If so, what are they?
2. Is there anything we need to do besides inform the state of California of the change? Which form should we use for this?
3. We want this change to be effective next year. Should we make the change on 12/31/16 or 1/1/17?
4. The person receiving full ownership has not been the person who files the taxes or who started the business. Does this impact anything?
5. If the soon to be non-owner continues to receive income from the company as a contractor but does not have ownership, should a K1 still be created?
Submitted: 10 months ago.
Category: Tax
Expert:  Lane replied 10 months ago.
Hi,...On your first question, there are only two ways to do this; (1) Remaining partner buys out the departing partner, or (2) Departing partner GIFTs the ownership interest to the remaining partner (Assets can only be sold, or given)....In the event of a gift, unless the fair market value the LLC interest is more than the lifetime exemption ($5450,000 for those dying in 2015), there is no tax due (although an IRS form 709 should be done to track against that lifetime exclusion)....In the event of a sale, the remaining member/partner, will have a gain or loss depending on their basis in the entity and the selling price....Regarding notice to California, fill out Form 100B. Indicate whether the change in ownership has resulted in more than 50 percent ownership by a new business or person, and whether any California real property interests have been excluded from filing. Complete Schedule A if a legal entity or person has acquired a controlling stake in the LLC. (This goes to STATE OF CALIFORNIA BOARD OF EQUALIZATION)...And filing something with the Secretary of stat is only necessary if your original articles listed LLC owners....Amend your articles of organization or operating agreement, if necessary. You must amend your LLC’s articles of organization or operating agreement if either provides a list of all LLC owners....Because the California Secretary of State does not require an LLC to file an operating agreement, amending an operating agreement simply requires changing the list of owners, having all owners sign the new operating agreement and keeping a copy of the new operating agreement on file at the LLC's registered office....If amending the articles of organization, you must use the California Secretary of State’s Certificate of Amendment form (Form LLC-2), where you provide the new list of LLC members under Section 1C. As of 2010, the filing fee for a Certificate of Amendment is $30. (This goes to SECRETARY OF STATE , Document Filing Support Unit, P.O. Box 944228, Sacramento, CA###-##-####)...Making this effective 01/01 will make things much easier on the final K-1, if you have a calendar year (be sure to mark the final K-1)....Finally, no. only members (owners in LLC terminology) receive K-1's. You will give all contractors a 1099-MISC (unless they are a corporation - S-Corp OR C-Corp exemption from 1099)
Expert:  Lane replied 10 months ago.
Here's the 100b:'s the LLC-2 (IF needed):
Expert:  Lane replied 10 months ago.
I hope this has helped....Please let me know if you have any questions at all....If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the faces or stars on your screen, and then clicking “submit That’s the only way JustAnswer will credit us for the work here....Thank you!Lane……I hold a law degree (JD, Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security/Medicare, estate, corporate & tax advice since 1986.