Partnership never filed with SOS

[cientax]

Father and son partnership have been in business for a few years but they never registered with Secretary of State (TEXAS). Now the son went and set up SMLLC with SOS in January this year, but he now has employees (previously subs). When we registered or set up his account with Texas Workforce Commission (SUTA) he wanted to add his father as one of the members of the LLC. Is this correct in that he set up SMLLC or should it be converted with SOS as LLP? Would it make any difference? He does not want S-Corp status.

Another thing is that he originally filed the LLC articles with the state of Nevada then later had to also file with the Texas SOS as foreign entity.

He did not consult with me prior to registering or setting up the LLC. He received his professional advice from a friend.

[kcjenkins]

Ah, yes, Nevada has a lot of people set up there because of their banking laws. There are quite a lot of business there offering to be 'registered agents', provide offices, forward mail, etc.

Anyway, the only difference in a SMLLC and a regular LLC is the number of members. He can certainly add his dad as a member, then he's not a SMLLC but a normal LLC, and he would file a 1065 for the business, with K-1s to each member.

[jainen]

>>should it be converted with SOS as LLP?<<

Choice of entity is very complicated, and it is important to be very careful with it. You will need local advice as the requirements and benefits of an LLP or LLC vary from state to state.

Variables include the type of business it is, who the active partners are, profit level expected at this stage of growth, overall business plan, nature and amount of assets to protect, type of potential liabilities. Many other things. If you are not experienced in this analysis, I strongly recommend you refer the question to someone qualified. Otherwise it could go horribly wrong for your client--and for you too.

[kcjenkins]

Unless there is a good reason for wanting to convert from an LLC to an LLP, I'd advise leaving it alone. There is nothing at all to be done to convert a SMLLC to an LLC with multiple members. And unless they 'elect' to be taxed as a corporation the default for an LLC is to be taxed as a partnership.

[cientax]

Thank you all for your responses but I have another question. Will the assets continue to carryover to the LLC without starting all over with depreciation, etc.? The Form 1065 has been filed in the years they have been in business as a partnership and assets have been depreciated accordingly. I'm sure it makes no matter that they were not registered with the state, but now that they are and are now LLC will this make any difference on the assets? Carry on with the assets without changes?

Also, does ther have to be a election filed with IRS to be taxed as partnership or just go with the default of partnership?

[kcjenkins]

Taking the last question first, no election is needed.

As to the first, it sounds to me like all they really did was to change the name of the partnership, so I would see this as merely a change of organization, and the assets would transfer over to the new entity at book value and depreciation would continue as if nothing had happened, as, related to them, nothing has.

As to the mechanics of it, I'd roll over the old partnership, then change the name and EIN, etc, leaving the assets just as they were before.