Converting an LLC from a Partnership to a Sole Proprietorship

[MitchTalmadge]

Well, our business hasn't made any money yet, and for this reason my partner was getting kinda impatient and decided that he wants to leave and transfer all his ownership to me for free. We started this LLC as a partnership, and he is listed as a Member. How do I go about restructuring the LLC to be a sole proprietorship, now that I am the sole owner with 100% equity? The amount of hoops and confusion that come along with business taxes is really discouraging towards starting and running a business. I'm 19 and completely in over my head. Why does it have to be so difficult?

Thanks for any advice.

[vangogh]

I wasn't sure so I searched Google and the IRS website and think I finally found what you need. Here's an article you might want to read (http://yourbusiness.azcentral.com/going-multi-member-llc-single-member-llc-12100.html). The gist is you need a signed agreement from your partner and you need to fill out form 8832 (Entity Classification Election) (https://www.irs.gov/uac/form-8832-entity-classification-election) with the IRS to let them know about the changes to your company. You might also need a new EIN number.

The one or two times I called the IRS for help, they were both nice and helpful. It's worth giving them a call if you're confused about what you need to do.

Yes, there are hoops to jump through at times, but don't let that discourage you. You don't have to deal with the hoops all that often. Once you make the changes to your business structure, you won't have to make the changes again. What you'll find is, over time you'll have a good idea where to look for the information you need most of the time and you'll have fallbacks to help when you can't.

I think most of us felt like we were in over our heads at first. I know I felt that way, but I learned one thing and then another and before I realized it my head was above water. Part of the challenge of being in business is having to deal with all sorts of new situations that you never expected. It feels like more than you can handle at times, but you make it through and go on to deal with the next situation.

Hope that helps.

[bizcoachsteve]

Mitch, when an LLC that is treated as a partnership drops to one owner, it goes through a "technical termination" and reverts to a sole proprietorship automatically. You don't need to do anything except to file a final partnership tax return, with a year-end date as of the last month you were both partners. Just be sure to file that final partnership tax form with 75 days of your new year-end to avoid penalties.

[MitchTalmadge]

Thank you both for the information. This helps a lot! I appreciate the encouragement, vangogh.