I checked my state's business registry the other day and noticed that my partner's s-corp has been delinquent since Jan. 2011. I assume he has not renewed the s-corp. and has not filed a return for this s-corp. during this time. My accountant has filed the tax return for our LLC accurately and on time, however I am concerned that the LLC and ultimately me personally could be held partly responsible for the taxes that have not been paid by my partner's s-corp. I have filed my K-1 with my personal return accurately and on time each year. I should also add that we do not have any operating agreement for our LLC. Should I be concerned that I could be held responsible for my partner's unpaid taxes?
I appreciate any help I can get on this issue.
In order not to lose or compromise to some degree the benefits and protections provided by the use of a formal business entity, it is necessary to follow all business and legal formalities associated with the proper maintenance of that entity, whether it be a corporation or LLC.
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You are not responsible for the taxes of your LLC Co-Member. You should discuss the delinquency. Sometimes, it is as simple as an annual filing with the Secretary of State and he may be able to easily correct it. If the LLC has payroll tax responsibilities that are not being paid (the LLC, not the S Corp), then you may be responsible for that as such would be considered trust funds. Also, normally one does not file a K-1 WITH a return, but reports the K-1 income ON one's personal return. Also, you DO have an operating agreement. And, it is the one dictated by the State when you fail to make your own. You may not like the terms of that agreement. I encourage you to meet with an attorney to draft an operating agreement. It should address the basic issues of the business and its management.
Marty Davidoff, email@example.com, 732-274-1600. This answer is provided for general information only. You should seek advice from an attorney or tax professional.
General Practice Lawyer
Honestly, this is nothing that can be fully addressed on a message board. Why don't you find one of the excellent attorneys on this AVVO website that work with business entities to make sure you are protected? Robert Murillo and Chris Leroi come to mind as possible contact for you.
Best of luck.
In no way am I offering you legal advice, and in no way has my comment created an attorney-client relationship. You are not to rely upon my note above in any way, but insted need to sit down with counsel and share all relevant facts before receiving fully-informed legal advice. If you want to be completely sure of your rights, you must sit down with an experienced criminal defense attorney to be fully aware of your rights.
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Estate Planning Attorney
If you are referring to the secretary of state's notice of delinquency, that simply means that the entity has failed to file an annual report, and if it does not eventually correct this it will be administratively dissolved as a corporation. From this you cannot know whether it actually has a tax issue going on. But clearly you should have an operating agreement that can address these kinds of problems and provides a contractual understanding between you and your partner - for example, an agreement could provide for a forced withdrawal of a member for tax delinquency, bankruptcy and the like. You definitely should have a lawyer help you to draw one up, and also look into any other problems that might be arising, including the tax questions.
This response is not intended to create an attorney/client relationship between any individuals, and is not intended as specific legal advice.
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