I am selling my LLC. What form do I need to transfer the company name from my ownership to another person’s ownership? What form do I need to file to let the IRS know 1) ownership of the company has changed and 2) the EIN is either transferred or no longer used?
Answer:
Business sale considerations: Even if your LLC is no longer operating, you cannot transfer the ownership of your LLC and its legal name from yourself to the buyer by completing a form that you submit to the state or federal government. The paperwork required to transfer ownership of your LLC to the buyer and the state and federal notification process (when required) will depend on your specific sale transaction. Also, the tax status of the LLC will impact the process.
The two basic forms of business sale/acquisition are equity and asset sales, and there are a number of important considerations in each type of transaction. In an equity transaction, the buyer purchases the business owners’ stock, in the case of a corporation, or membership certificates, in the case of LLC. The acquired company’s debts and obligations remain. In addition, the company and new owner are liable for any unknown liabilities (vendor, taxes, etc.) that may arise in the future. In an asset transaction, the buyer purchases the assets of the business entity and not the business entity itself. The acquiring company does not take responsibility for the debts of the acquired business; but rather, the acquired company uses the proceeds of the sale to settle all obligations of the business and is responsible for any future debts that may arise. Also, the seller generally gives written indemnification regarding the company’s debts and obligations. Due to the risks in an equity transaction, small business acquisitions are generally structured as asset sales so that the buyer does not have to worry about unknown contingent liabilities.
Whether the transaction is structured as an asset or an equity sale, you will need to value the business and its assets. This may be fairly straightforward if the business has few assets and has ceased operating. In this case, the business value may simply be the fair market value of its assets, but other factors can influence the value of a business entity. As we mentioned above, if the transaction is an equity sale, you will sell your membership certificates or ownership interest in the LLC to the buyer. If the transaction is an asset sale, you will sell the LLC’s assets and not the LLC to the buyer.
To clarify the specific steps in the sales process and draft the appropriate agreements, we recommend that you work with your lawyer. Also, your tax advisor or CPA should be consulted to help assess the tax implications of the sale. For discussion with your lawyer and tax advisor, the following are additional considerations and tools for selling a business:
Sample LLC membership/interest sale agreements:
General business sale agreements:
Links and references to sample and template documents have been provided pursuant to your request. Templates and sample documents can be very useful but businesses should exercise caution in the use of such documents. Understand that not all templates are created equal, with many being created for a narrow set of requirements. A particular template will not be warranted to cover every provision that may be required by a particular set of business circumstances. Studying the language included in various samples and templates will improve your level of understanding related to the subject of your particular agreement and may help you articulate your business objectives related to an agreement, but be aware that many, perhaps most, agreements should be prepared by your lawyer to provide greater assurance that your interests have been protected.
Tax reporting: Form 8594, Asset Acquisition Statement Under Section 1060, must be filed with the IRS in certain business asset sales. As discussed at the IRS website, “Both the seller and purchaser of a group of assets that makes up a trade or business must use this form to report such a sale if goodwill or going concern value attaches, or could attach, to such assets and if the purchaser’s basis in the assets is determined only by the amount paid for the assets.”
Without knowing all the details of your business sale, we cannot confirm that you and the buyer need to file Form 8594 with the IRS to report the sale. With an equity sale there may be no requirement to report a business ownership change to the IRS; however, whether an asset or equity sale, the seller will need to report gain or loss on the sale of the business assets or equity on the seller’s federal and state tax returns in the year of the sale.
EIN cancellation: As to canceling your LLC’s EIN, you can review the following IRS information which explains:
“Once an EIN has been assigned to a business entity, it becomes the permanent Federal taxpayer identification number for that entity. Regardless of whether the EIN is ever used to file Federal tax returns, the EIN is never reused or reassigned to another business entity.
The IRS cannot cancel your EIN. However, if you receive an EIN but later determine you do not need the number (the new business never started up, for example), the IRS can close your business account. The EIN will still belong to the business entity and can be used at a later date, should the need arise.
To close your business account, write to us at: Internal Revenue Service, Cincinnati, Ohio 45999 and state the reason you wish to close your account. If you have a copy of the EIN Assignment Notice that was issued when your EIN was assigned, include that when you write. Otherwise, be sure to include the complete legal name of the entity, the EIN, and the business address.
Note: If (1) you made a Federal Tax Deposit or other Federal tax payment, (2) are liable for any Business Taxes, or (3) the IRS has notified you that a business tax return is due, you must file the appropriate tax return(s) before we can close your account. See Closing a Business Checklist for other actions you may need to take.”
The buyer will likely need to obtain a new EIN for the business from the IRS. You can review the EIN requirements at the following website:
