Taking over (not hostile) another Company

[djcardinal]

I own my company, and I am setup as an S-Corp (probably irrelevant). My good friend and partner has his own company, an LLC I believe. He is actually beginning a new job with a company where he will no longer be able to work his self-owned company.

My question is this. He is willing to "give" me the company. I am pretty sure in the state of Kentucky (where we both are) a person can own more than one company.

The companies are both consulting only companies with no inventory or real assets (except Phones/PC's etc). He has a few little AP accounts he owes on and a couple agreements with vendors/partners (which I am most interested in). Also there is some revenue coming in from prior work, and definitely a nice pipeline of future work.

1st Question: Does anyone know any legal parameters I should worry about. The whole LLC versus S-Corp thing baffles me and maybe I am making more of it then I should.

2nd Question: As long as I become the new owner of said company, any agreements with previous partners should flow, as long as for example I don't change the name.

Any other areas of concern I should think about?

I haven't talked to an attorney nor accountant yet as this is a feeler. I would really like to keep his company as I believe the growth is amazing, but if there is a "big-to-do" in order to make it happen, I may just pass.

Thanks,

David

[Freelancier]

1) Don't worry about the LLC vs. S-Corp. I have both for different businesses. It's not a problem, states don't limit how many you can control. Single-person LLCs are considered "disregarded entities" for tax purposes, but an S-Corp is still a corporation where the profits pass through to your personal tax return. Functionally, not that different. Some differences in the types of pension plans you can set up, LLC members vs. S-Corp shareholders, that kind of thing, but nothing major and an accountant can explain it all in about 10 minutes.

2) Depends on the contracts and the agreement you put in place to take possession of his stake in the LLC. You'll need to dig deeper into that to be sure and a lawyer might help if it starts to seem confusing.

[Business Attorney]

Freelancer's answers are good. There are some definite differences that may make an LLC or an S Corp better in any particular situation, but for a single owner of either entity, those differences are fairly minor. Besides, an LLC can elect to be treated for tax purposes as an S Corp (http://www.limitedliabilitycompanycenter.com/llc-electing-s-corp-status.html), so even that difference can be overcome.

In terms of continuing the contracts, changing the name is not the test. Unless the contracts are expressly terminated by a change of ownership of the LLC, the contracts will continue to be valid even if there is a new owner. That is true even if you change the name. Conversely, if you buy assets rather than the LLC interest of your friend, the contracts can only be transferred if they are assignable to your new entity, even if you keep the name the same (by changing the name of the old entity, since no state permits two entities to have the same name at the same time). In most states, the law is that most contracts are assignable unless they prohibit assignment, but there is often an exception for personal service contracts, since the contracting party was often entering into the agreement based on the understanding that it would be performed by a specific person. A lawyer would have to look at both the language of the contract and the nature of the services to determine whether there are problems transferring the contracts.

Good luck.