Business Startup Checklist: Partnerships & Multi-Member LLCs

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1

Get New ID Numbers

Your Partnership/LLC requires new federal and state ID tax numbers. it is not allowed to use a member's social security number or the business' prior tax ID number as its own tax ID number, and only rarely it it allowed to transfer its existing other business tax numbers to the Partnership/LLC. I strongly suggest you coordinate obtaining these numbers with your attorney and/or CPA, since failure to get all your new numbers will create major headaches with any number of federal and state tax and regulatory agencies.

2

Establish New Bank Accounts

Your multi-member Partnership/LLC also requires a new Partnership/LLC bank account. Your existing bank account cannot simply be renamed, since that account is associated inextricably with your previous tax ID number, and your new Partnership/LLC is required to have its own tax ID number.

3

Set Up or Replace Payroll System, if Necessary

A Partnership/LLC generally does not need a payroll system if it doesn't have additional employees beyond its members; the members can pay themselves directly from Partnership/LLC bank accounts and each member can make its own quarterly estimated tax payments. If the business already has a payroll system, it does need to be replaced, since the old payroll system is using the old (and now obsolete) tax ID number. Also, if an LLC makes an S election, the members are considered employees and the LLC must withhold payroll taxes from their paychecks, concurrently pay the LLC's share of payroll taxes, and file quarterly and annual payroll tax returns. Failure to withhold and pay payroll taxes in a timely manner has serious penalties for which the LLC does NOT have limited liability - anyone who can sign a check for the LLC is personally liable. If you are not experienced in payroll issues, I strongly suggest the LLC hire a payroll company to complete these duties.

4

Transfer Licensing & Permits

The Partnership/LLC will need to obtain (or change to its own name) its business license, and any government permits needed to operate its business. If the members have a professional licenses (dental, contractor, etc.) and your state allows the members to practice that profession as an LLC or PLLC (I hope you checked this beforehand), those members may also have to register with the state licensing board that they are now operating as a PLLC.

5

Transfer Vehicle & Equipment Registrations

Unless the members have a formal lease arrangement with the Partnership/LLC, the Partnership/LLC needs to register (or change registration to its own name of) all tangible business assets (such as vehicles and registrable equipment). If a tangible asset hasn't been put in the Partnership/LLC's name, and it is involved in an accident, the member who formally owns the asset can be held personally liable for any damages.

6

Transfer Name Registrations

The members also need to formally assign any fictitious business name and trademark registrations to the Partnership/LLC. If they do not do so, any actions taken under that name or mark could be attributed to the member who owns the name or mark (it's a matter of public record). Also, formal assignment of the name to the Partnership/LLC is required to permit the Partnership/LLC to use that name. For example, the bank will require proof that formal assignment has occurred before it allows the Partnership/LLC to set up its bank account using that fictitious business name.

7

Notify Customers & Insurance Panels of New Name & Tax ID Number

Payments to your business (such as capitation payments and insurance reimbursement for patient treatment) need to be made in the name of the LLC to avoid the "co-mingling of assets" problem. Although some banks permit deposit of 3rd party checks (checks made to you personally but deposited directly in the LLC account), many do not. Dentists and doctors: transferring your capitation and PPO contracts to the Partnership/LLC can take anywhere from a few days to six months, so you need to get started the process immediately after the Partnership/LLC is formed and you have your federal tax ID number. Also, if your payor gives you a 1099 at year-end for payments made, you want that 1099 directed to your Partnership/LLC rather than you personally. If you get a personal 1099, you need to give a personal 1099 to the Partnership/LLC for that amount; otherwise, you might be subjected to an unnecessary tax audit for unreported income.

8

Change Account Names with Vendors & Service Providers

Business vendors and service providers should convert their billings to the Partnership/LLC name (e.g, the premises lease, equipment leases and vendor accounts), although they are not required to do so, to maintain the limited liability protection of the LLC. Insurance policies also need to have the Partnership/LLC's name included, otherwise claims against the Partnership/LLC may not be covered.

9

Establish New Credit Cards and Credit Lines

If you have business credit cards and lines of credit and your lenders will not allow you to convert them the name of the Partnership/LLC, you will need to obtain new ones. Again, the purpose is to avoid the "co-mingling of assets" problem. If your Partnership/LLC has assumed the prior business debts along with the assets, it can pay those old debts - but (for limited liability purposes) that assumption should only give you, and not the creditor, the right to require the Partnership/LLC make payments.

10

Convert to "LLC" Public Persona

The limited liability benefits of being an LLC are lost if the business doesn't represent to the public that it is an LLC. Therefore, to the extent the members used their personal name(s) as the business' public persona, the LLC needs to transfer that persona into its own name. We're talking web pages, telephone and internet directories, advertising, signage, business cards, letterhead, billing statements ... everything!

11

Disclaimer - Legal Stuff

IMPORTANT: This Legal Guide is made available for educational purposes only. There is no attorney client privilege between you and the attorney author. This Legal Guide is not a substitute for competent legal advice from a licensed attorney that specializes in this area in your home state and with whom you have an attorney client relationship. Also, law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance described in the question. Copyright 2011 by Robert W. Olson, Jr. - all rights reserved.

Additional Resources

Tax Comparison: Corporation vs Partnership

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