Discussion:LLC client bought into another LLC (50% stake)

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Discussion Forum Index --> Accounting Questions --> LLC client bought into another LLC (50% stake)

Newarcher (talk|edits) said:

20 November 2008
One of my more difficult clients called today and informed me that he bought a 50% stake in a new LLC. Here's the story.


My client has a simple IT consulting business organized as an LLC (aka LLC1 going forward).


My client more or less started up another company doing consulting as a partnership. My client and another party each ponied up $1,000 to the new company and the payment was made from the business account of my client's LLC (LLC1).


Why? Well, my client fancies himself as some business tycoon and there seems to be some draw to making my hair greyer than it already is.


Unfortunately, the client has already drawn up the agreement with a lawyer so getting him to redraw it whereby he creates a separate LLC entirely is probably unreasonable.


Can someone give me a quick bullet point refresher?

Newarcher (talk|edits) said:

20 November 2008
A couple additional points...


My client will be a 50% owner for now. He will participate fully in the business.


So technically he will not be a minority interest and the newly formed business will be a LLC Partnership.


Eventually, a third partner will be brought into the consulting business.


Thanks, Michael

Kevinh5 (talk|edits) said:

20 November 2008
this question has been asked already.

Newarcher (talk|edits) said:

20 November 2008
Yeah, I was asking from the accounting side here and the taxation side over there. Not trying to duplicated answers, trying to focus discussions to the appropriate forum.


After consultation with the experts, I think I have come to the conclusion that we will be keeping a separate quickbooks file for the two businesses, one as a single member disregarded LLC and one as a multi-member LLC partnership. The only question remains how to reflect the two balance sheets and how and where to report incomes from the LLC 2.


Thanks, Michael

Dcrane (talk|edits) said:

7 December 2008
Unless LLC1 has effective control of LLC2, then you would need to account for the investment on LLC1's books under the equity method, starting with the initial investment and increasing or decreasing it by 50% of LLC2's earnings/losses each year. Without control, I wouldn't think consolidation would be appropriate. When the new partner is added, there will be no question about control - clearly accounted for on the equity method at that point.

LLC2's balance sheet will, of course, simply reflect its own assets, liabilities, and its two partners' capital accounts, without regard to LLC1's operations or balance sheet accounts.

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