How to leave an LLC completely?

[footballfangb]

I am one of the two members of an LLC that provides consulting services for large business clients. We incorporated in Oct 2011 in Minnesota, which is where I reside and have registered ourselves as a foreign LLC in Wisconsin, which is where my other partner resides. In 2011 all we had was some startup expenses of $2K that were funded personally by credit cards and no revenue. I invested about $10K in capital in 2011, that is still in our bank account and my partner has yet to invest but is open to putting the money. In 2012, we have made decent income so far and have more revenue lined up.

We are friendly and have always discussed and came to fair agreements. As such, we have never created an operating agreement. Due to an unexpected really good job offer that came my way, I am considering leaving the LLC. I have discussed this with my business partner and he has no issues with this. We discussed options on what's the best way for me to exit and for him to keep operating. We are open to ideas but our goal is to make this easy as well as smooth for both of us.

My questions are,

1. What options do we have? What is the best option that is easy to execute, doesn't cost aton of money but let's my business partner operate the business without lot of change on his part?
2. How can I transfer/sell the business that is incorporated in Minnesota when the other business partner is in Wisconsin? What kind a documentation should we keep?
3. What should we do about my $10K investment? Can I write a check to myself or do we need to execute a sale agreement? Will this cause a tax liability for me?
4. Do I need to worry about any future liabilities?
5. Do we need to send any documentation to Minnesota , Wisconsin and IRS?


I am looking forward to getting some help on this topic from folks here. Thanks in advance.


Footballfan

[Business Attorney]

Footballfan, here are some general comments. Understand that I have not looked at either the Minnesota LLC act (http://www.limitedliabilitycompanycenter.com/minnesota.html) or the Wisconsin LLC act (http://www.limitedliabilitycompanycenter.com/wisconsin.html) (citations to those acts are on the pages linked to here, if you care to look them up). Also, nothing is intended to be legal advice, just an attempt to provide some general direction.

1. Usually the easiest way to transfer ownership is to simply assign your LLC membership interest. The other choice, dissolving the LLC and distributing assets, is much more cumbersome and is rarely justified.

2. Yes, the state of residence of the partners is irrelevant. If you do an Assignment of LLC Membership Interest, both of you should keep a copy of that document.

3. If you receive your $10,000 back in consideration of the transfer of your membership interest, you may have a gain or loss depending upon whether income or loss was allocated to you while you were a member. Your tax basis in your interest is increased by any income you recognized and by any additional contributions you made to the LLC and your basis in reduced by any losses you suffered and by any distributions you received. If your tax basis is more than $10,000, you will have a capital loss, and if it is less than the $10,000 you receive, then you will have to recognize the excess as a gain.

4. An LLC limits the liabilities of the members, but it does not completely eliminate them. See How Limited is Limited Liability (http://www.limitedliabilitycompanycenter.com/how_limited_is_limited_liability.html). The transfer itself should not affect your potential responsibility for liabilities of the LLC existing at the time of the transfer. If you did something that caused you to be personally liable, transferring the interest is not going to make that go away. On the other hand, it should eliminate the potential for any new liabilities arising after the transfer of the membership interest.

5 I can't answer whether you need to file anything with MN or WI authorities. That answer really varies considerably among the states. Links to the respective secretary of state offices are on the pages linked in the first paragraph of this post. As for the IRS, when the transfer is made, the LLC is no longer a partnership for Federal tax purposes. You must file a final return for the partnership (LLC) for the stub year ending on the transfer date.