Hello and thank you for your question.
There are two aspects to selling an LLC
1. Combining the two LLCs so that the surviving entity gets legal
ownership of the assets of the LLC that is going out of existence, and
2. Reporting any gain or loss on the sale for income tax purposes.
For point (1), you should start by deciding how you want things to end
up - - either the AZ LLC could become the new owner of the MA LLC and
keep it in existence (in effect like a subsidiary of the AZ LLC), or
the MA LLC could merge into the AZ LLC (so that the MA LLC goes out of
existence and all its assets are in effect absorbed by the AZ LLC).
Since you say the AZ LLC wants to continue using the name of the MA
LLC, I agree that what you want is for the AZ LLC entity to become
100% owner of the MA LLC and keep it in existence. In other words,
the AZ LLC or the individual owner of the AZ LLC (it doesn't matter
who pays), will pay the owner of the MA LLC whatever purchase price
has been agreed on. In exchange, the owner of the MA LLC will sign
over ("assign") ownership of the MA LLC to the AZ LLC.
Footnote: if you were merging the MA LLC into the AZ LLC and putting
the MA LLC out of existence, that would be accomplished by a Plan of
Merger as described in AZ Law:
ARIZONA LIMITED LIABILITY COMPANY ACT
Article 7, Section 29-752
Procedure for merger or consolidation; exchange
Article 7, Section 29-757
Effects of merger or consolidation
Since we're keeping the MA LLC in existence, the one other thing
that's needed is to make sure it is qualified to do business in AZ
(since that's where it's now going to be located).
Actually the consequences of failing to register the MA LLC in AZ are not so bad,
29-809 Transaction of business without registration
but there's a whole article under AZ law that tells how to register it
properly and probably the buyer should take the trouble to do it
Article 9 Foreign Limited Liability Companies
29-801 Law governing foreign limited liability companies
29-802 Certificate of registration; application
29-803 Registration of foreign limited liability company; certificate
29-804 Name of foreign limited liability company
29-805 Changes and amendments to foreign registration
29-806 Requirement for statutory agent of foreign limited liability company
Also, you won't be surprised to learn that there are commercial
agencies that will be glad to do all this for you, one of which is
where I took the above links from:
So if following these steps is too much for you, they'd be happy to do
it for you for a price.
For Point 2, both LLCs are "disregarded entities" for tax purposes
because they each have only one owner. That means that the seller
simply reports the sale on the seller's personal income tax return,
Form 1040, as if there were no LLC and the seller simply owned all the
assets directly. That's how the IRS wants it, in fact they don't even
want the LLCs to obtain taxpayer id numbers and they don't want the
LLCs to file partnership tax returns Form 1065.
"An LLC that has only a single member and is not required to be
classified as a corporation will automatically default to the
classification of disregarded entity. The disregarded entity files as
a sole proprietorship and completes the appropriate schedules as part
of the single owners Form 1040."
That's it, and really it's not as complicated as it might seem.
Search terms used:
Arizona LLC "uniform act"
"disregarded entity" llc site:irs.gov
Thanks again for letting us help.
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