Legal Question in Business Law in California

LLC Member Transfer of Interest

If one member of an LLC transfers part of his interest to another member of the LLC w/in a year of the LLC being formed, will this be a taxable event? What's the best way to effect this?

Asked on 5/07/08, 8:23 pm

2 Answers from Attorneys

Bryan Whipple Bryan R. R. Whipple, Attorney at Law
0 users found helpful
0 attorneys agreed

Re: LLC Member Transfer of Interest

I'm not a tax expert, but from a generalist business attorney's point of view, I'd say that the transferor, having disposed of a capital asset, has either a short-term gain or short-term loss which needs to be reported. There is no tax impact that I can see on either the LLC or the transferee. Whether the gain or loss is active or passive probably depends upon the transferor's degree of personal involvement in the LLC.

What's the "best way to effect" what? If you're looking for ways to soften the tax impact, I'd say this needs to be decided in a four-way conversation between transferor, transferee, and their accountants or tax advisors. If you mean what is the best way to effect the transfer of a part of a member's interest in an LLC, I'd say retain a business lawyer like me and negotiate the terms (price, etc.) of the transfer. As you probably know, transfer of an economic interest in an LLC does not automatically carry with it any membership rights, such as voting or management, and if this is the intent, that has to be worked out separately in accordance with the LLC's operating agreement and may require modifying its organizational papers.

Read more
5/07/08, 9:01 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law
0 users found helpful
0 attorneys agreed

Re: LLC Member Transfer of Interest

I'm not a tax expert, but from a generalist business attorney's point of view, I'd say that the transferor, having disposed of a capital asset, has either a short-term gain or short-term loss which needs to be reported. There is no tax impact that I can see on either the LLC or the transferee. Whether the gain or loss is active or passive probably depends upon the transferor's degree of personal involvement in the LLC.

What's the "best way to effect" what? If you're looking for ways to soften the tax impact, I'd say this needs to be decided in a four-way conversation between transferor, transferee, and their accountants or tax advisors. If you mean what is the best way to effect the transfer of a part of a member's interest in an LLC, I'd say retain a business lawyer like me and negotiate the terms (price, etc.) of the transfer. As you probably know, transfer of an economic interest in an LLC does not automatically carry with it any membership rights, such as voting or management, and if this is the intent, that has to be worked out separately in accordance with the LLC's operating agreement and may require modifying its organizational papers.

Read more
5/07/08, 9:06 pm

Related Questions & Answers

More Business Law questions and answers in California

Looking for something else?

Get Free Legal Advice

88177 active attorneys ready to answer your legal questions today.

Business Law Legal Forms

Browse and download our attorney-prepared and up-to-date legal forms from $4.99

Find a Legal Form

Featured Attorneys

Anthony RoachLaw Office of Anthony A. RoachChatsworth, CA
David SlaterDavid P. Slater, Esq.Boca Raton, FL
Phillip D. Wheeler, Esq.Phillip D. Wheeler, Attorney At LawMorro Bay, CA
Find An Attorney

Are you an Attorney?

Earn additional revenue and grow your business. Join LawGuru Now