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  1. #1
    Join Date
    Dec 2009
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    1

    Default Transfer Assets from C Corp to LLC

    My question involves business law in the state of: California

    I own a software company that for many years has tried but never really sold much, so we could argue that the value of the software is nothing.

    We were advised to close the C corp and transfer the code ownership to a new LLC, just in case we ever did well and managed to get acquired so that we would avoid double taxation.

    This leaves me with 2 questions:

    1) Is there anything I need to document or forms to file to "prove" that the current value of the company/software is nothing so I'm not doing anything illegal in transferring ownership for no cost?

    2) We have some marketing materials using the old name. I know the LLC needs to be a different name, but any risk of using the old website, biz cards, etc...? The new name will be as close as California will let us.

    Thanks!

    Jim

  2. #2
    Join Date
    Mar 2009
    Location
    Key West, FL
    Posts
    2,350

    Default Re: Transfer Assets from C Corp to LLC

    As long as the owners/stockholders, board of directors approves of the transfer of assets, there should be no problem. The value of software code that has no or limited sales is basicly whatever you say it is. It is not a physical asset with depreciation. It is intellectual property and that is very hard to value. For example, I invested $150,000 in programming of an online game but ran out of money before it was finished. So, the code works on a single computer but does not work online. It is basicly worthless. How could any value be placed on that?

    I am not a tax attorney. You should see one or at minimum research any tax cases involving the transfer of software or see if there is any tax code that covers it.

    It is your business, however, the possible future double taxation is really a non-issue if you talk to any decent tax attorney. And it is all a flyer anyway.

    It is your business, but I don't see the financial point of it all unless the annual report fee and such are much lower for an LLC than a corp. The only difference between a c corp and a s corp is a declaration to the IRS. It means nothing to the secretary of state.

    An s corp makes a lot more sense than an LLC. Personally I would never be involved in an LLC as it is really just a partnership with third party liability protection. I have no idea of course if your corp has done something that would prevent it from being an s corp such as issuing more than one class of stock.

  3. #3
    Join Date
    Sep 2005
    Location
    Behind a Desk
    Posts
    73,016

    Default Re: Transfer Assets from C Corp to LLC

    If you're transferring assets from one business entity to another, while pretending that they all have no value, you're running a risk. It's reasonable to infer up front that the assets have some value, or it wouldn't be worth the bother and expense of transferring them to the new entity. The best way to protect yourself is to work with your business lawyer and accountant, who have access to a lot of information we lack.

  4. #4
    Join Date
    Jul 2007
    Location
    Florida
    Posts
    1,777

    Default Re: Transfer Assets from C Corp to LLC

    You would do better to convert the C corporation to an S corporation. That way, the basis you have in C corp stock becomes the beginning basis in stock when the corporation converts to S status. This should not be a taxable event. You would continue to depreciate or amortize as you were doing in the C corp. This would also avoid any possibility of future double taxation.

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