Buying out Partner in LLC, Urgently Need Advice!

Ok, first of all this is not to be construed as advice concerning your financial dealings. You need to be consulting qualified professional legal and financial professionals right now.

What I can say applies to LLCs in general, not necessarily your situation. LLCs do have employees who are on payroll but unless the LLC elects to be taxed differently, the owner or owners take money via an owners draw and are not employees. You can be a sole owner of an LLC (or a partner). That is set up through your appropriate state agency and they would be the place to start to find out how to change that.

I can't emphasize enough how you should be consulting a lawyer.

Dennis

I beleive that upon buy out of partnership interest.. The partnership will no longer exist ( in the IRS eyes your missing a key component ie a partner) and you would then be a Single member LLC if you want. You may want to close it out ( disolve) and start up a new one so that you won't have to assume the possible liabilities / lawsuits of the old partnership. The taxes are not paid at the partnership level ( usually not anyways) if your talking about income taxes, they are paid at the 1040 level. My advise is to disolve and start a new and properly report employees as employees ( they are looking at that stuff always ) Of course you should probably seek out an attorney, because I could be wrong and or missing important info etc.

Hope this helps

You mention partner and LLC in the same sentence. LLC's have members, Partnerships have Partners. Are you structured as an LLC and being taxed as a Partnership? What State are you operating the business in? States have different regulations concerning the start up and the dissolution of LLC's. If operating in the Partnership mode, there will be a need to close the Partners Capital Accounts and a final Form 1065 to the IRS, and possibly a Franchise and Excise to your state taxing authority. I would not disburse the funds from the LLC owned accounts until after the tax returns were at least completed in order to determine if there are any outstanding liabilities, i.e. tax, fees, ect. You did not advise as to why you elected LLC status in the beginning, was it to limit liability or attract other members/partners? As far as the payroll issues, do you have an EIN currently? And do you intend to continue as a sole member LLC or switch to a kinder/gentler form of business entity? Sole proprietorship or continue as an LLC, with new members, ect? You may not be able to keep the original EIN as issued, it belongs to the LLC, and could be attached to the other member. In the absence of additional information, it is difficult to determine the best choice for you to make at this point. I do caution, however, that you do not disburse the majority of the funds in the bank accts. until you have determined any liabilities and decided how you are going to continue with the endeavor and the structure that you intend. The payroll is not your deciding issue here, there are much larger issues that need to be resolved first. Please advise further your desires, intents, and the structure that you wish to remain for your business affairs.

First, thank you all for your helpful replies.

To clarify, my business is in Alabama. We chose LLC to limit liability.

We have an EIN.

There will not be any new members.

Hope this helps and thank you all again!

Okay, as per your answers, No new members being solicited. This would make you (should you decide to continue in this mode) an Single Entity LLC, treated for Federal Tax purposes the same as a Sole Propreitorship and filing a Schedule C. Given that you will be subject to S.S. Self Employment tax on your net earnings, and other than limiting your exposure and or liability, I don't see at this time why you would want to continue with this method. What with the burdensome requirements of reporting to the State and the taxation issues thereof, the filing of the State Form 65, and the related schedules, would seem to me not worth the effort if your only recourse is to limit your liability. The costs associated for an umbrella liability policy in coverage amounts to meet your expected exposure would probably be less expensive than your current burden of taxes., fees, ect. Since you will own the LLC, and the taxation of wages, I.E. SS, Medicare, State, ect. would come from your own pocket, the only advantage there would be the deduction for those taxes against the income along with other expenses. However, that would entail the filing of Forms 941, Employers Quarterly Tax Return, and Form 940, Annual Federal Unemployment Tax Return, in addition to your State Unemployment Tax Return, or State Unemployment Tax Act Return. Whether you are an LLC, Corporation, Partnership or Sole Proprietor, YOU are responsible for the witholding and the payment of these trust fund taxes on any employee, and yourself; if you choose to be included on the payroll. In all probability, since at least 50% of the ownership of the LLC is being dissolved, you would be treated as a Sole Proprietor for Federal Taxation, and would need to apply for a new EIN and turn in the old one. There are also State Forms to be filed for the dissolution and the change of Agent, address, ect. and these carry a fee if you remain as an LLC. Remaining as an LLC means that you will have to file at least 1 additional tax return per year, the Form 65 to Alabama, then the Federal 1040, and then your personal Alabama Form 40. Why add on more than you need to? If you are not seeking a NEW Partner, or another Member for the LLC, why not just explore the costs associated with an Umbrella Liability Policy in the coverage you need, and retire the LLC? You can always re-apply for another Entity, such as Corporation, Sub-S, LLC, LLP at a later date if warrranted. You haven't mentioned wanting to attract Shareholders, or selling stock or raising Capital, and as such, why not make your burden of recordkeeping and tax filings as simple as you possibly can, while still limiting what would otherwise be your exposure to suit, legal, ect? As to the previous statement about disbursing funds from the current bank account(s), I again CAUTION you that to be unwise until after you have determined any outstanding liabilities and the like. A consulatation with a knowledgeable attorney would seem to be in order at this point, in order to insure that you and or your current Partner do no make or undertake any material mis-steps that could haunt you later. Prior Preparation Prevents Poor Performance. The independant Contractor issue is hotly contested now, and the IRS is viewing with a jaundiced eye the classification process thereto. I would review the Focal Point test for Employees vs. Independant Contractors to determine if you should continue to issue Forms 1099 for Contract Labor. While the burden of reporting and the witholding of Payroll Taxes can be daunting, it is far less expensive than having a current or former worker Re-Classified and facing the penalties thereof. In these times of limited revenue collections, you can be assured that there are far more Penalties and Interest calculations than there are taxes, and They, the Federal, State and Local taxing authorities have no humor or reluctance in applying them to improve what would otherwise be their income stream. With the limited amount of information that you have provided here about your entity, it is at best difficult to render answers that are succinct and more than general in nature. If you would like to discuss the issues, please feel free to request my address and or phone where we can then talk about the wherefores and why, the wherewithals, the have and have nots, and the related questions and issues you face. In addition, here is the name of a website written by an Attorney who specializes (ex post facto) in LLC's. Limited Liability Company Center.com. There appeared to be a considerable amount of interesting and useful information contained therein. However, Caveat Emptor. (Let the Buyer Beware)

Thank you all again for your responses. You see, I am a medical professional and my soon-to-be ex business partner handled the structuring, taxes, etc. I don't know much about all this and I have to learn FAST.

Slats, I would love to have your email address to futher discuss this if you have the time.{edited} Your advice is invaluable to me.

I do have malpractice coverage now that covers myself and any employees. If I retire the LLC, I wonder which structure would be best for me for tax purposes etc. It would also help if I explained the nature of my company to you.

Again, thank you for the responses.

A reminder to the community - do not include such info as phone numbers or email addresses in your posts (with the exception of the classified forums). The public posting of email addresses contributes to spam (I don't know about you, but I get enough already). The best place for that info is in your profile, but keep in mind that info is still available to the public.

Thanks,

Dennis

I have a similar issue, I am in an LLC with one other member we have an operating agreement which states in the agreement we have equal voting and decision making authority- but my name isn't listed with the State of Texas in the "LLC"  we have come to a crossroads on a decision and he states that I have no rights to anything since IM only in the OA and not on the LLC- the bank account is our business account- but his name is on the account and IM just a signer on the account- he is saying that I have no right to any funds in the account and now has froze the account and is taking money out of it for whatever.  Does the OA supersede the LLC? do I have any rights, or am I just well........screwed? He is out of state me and 4 other employees run the business daily, does anyone have any advise?