Disolve C Corp, New LLC

[Duane Anderson]

The majority stockholder of a C corp has debt secured by intangible assets. The C has no other assets or debt and has had losses since it was formed about two years ago. He wants to dissolve the C and start up a new LLC ( he would be 100% owner)and transfer the assets and secured debt to the new LLC. Can this be done tax free? I assume the C corp would lose the NOL.

Thanks, Duane Anderson

[ChEAr$]

The majority stockholder of a C corp has debt secured by intangible assets. The C has no other assets or debt and has had losses since it was formed about two years ago. He wants to dissolve the C and start up a new LLC ( he would be 100% owner)and transfer the assets and secured debt to the new LLC. Can this be done tax free? I assume the C corp would lose the NOL.

Thanks, Duane Anderson

If the corporation has no physical assets, has it been or is it still conducting valid business operations? You hint that it has/is, if for no other reason that the owner wants to start a new LLC. Why?

More question come to mind of course. And if operations continue, might that NOL conceivably be of use in the future?

[Lion]

Two Transactions

The C-corp can dissolve, losing its remaining NOL and distributing its assets to its owners at FMV in a fully taxable distribution, probably showing a profit on amoritzed assets. (Do the owners receive them at FMV or their former basis?) You'll really have to research dissolutions, but my point is this is one of two transactions.

Then, the former shareholders can contribute their assets to the new LLC in a tax-free manner if not as compensation for services rendered.

I have not dissolved a C-corp nor had any of my clients contribute assets to an LLC other than monies to fund the checking account, so you want to research those details! But, I do know that it's a two-step process.

I agree with ChEAr$ that your client might want to discuss with you what they're trying to accomplish, as that NOL might come in handy if he's continuing the business and stays with his current C-corp. If his new LLC continues to have losses and is a disreagarded entity, he may have hobby loss issues.

[veritas]

Ttb

The majority stockholder of a C corp has debt secured by intangible assets. The C has no other assets or debt and has had losses since it was formed about two years ago. He wants to dissolve the C and start up a new LLC ( he would be 100% owner)and transfer the assets and secured debt to the new LLC. Can this be done tax free? I assume the C corp would lose the NOL.

Thanks, Duane Anderson

gives an example of an S Corporation converting to an LLC In this case the LLC elected to be taxed as a corporation that qualified for a tax free reorganization.

But if you are going to tax the llc as a disregared entity it would not qualify.

[Duane Anderson]

Re Dissolution of C Corp / New LLC

The majority owner has put all the money in the corporation to provide operating capital via a secured debt. Basicaly the dissolutio of the C is to get "rid of" the minority shareholders who have not invested any $. The transfer to the intangible assets would basicaly be at FMV which is very close to the amounts of the secured debt...Thanks for your replies...Duane Anderson

[Lion]

Buy Out?

How big is the NOL that would be lost and how much would it cost him to buy out his minority shareholders? If they didn't put in much and the company has had losses, their share can't be much now. Help him list the pros and cons of the different scenarios.