Question:

My dad and I own a limited liability company together. Though, he has been very ill for the last year and a half, and wasn't able to contribute anything to the business. Since he plans to stay out of the business, do I need to shut down the LLC altogether and open up another one as a single member LLC for myself? Or can I restructure somehow? If yes, then how?

Answer:

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Send us an email and we’ll try to answer it for you. Due to the volume of questions we receive, we are not able to answer all questions. Questions that are selected for publication may be edited for length and clarity.There's no need to close up shop. Your father's illness doesn't change the fact that he still owns part of the company. So either you'll need to buy him out or work out an arrangement in which he'll remain an owner until his death. The latter option may even present certain tax benefits, says David Levi, a tax director with CBIZ MHM in Minneapolis.

If your father still owns part of the business at the time of his death and his assets aren't large enough to trigger the estate tax (that is, $3.5 million in 2009), then his interest and the appreciation that accrued during his lifetime, which would fall to you, won't be subject to income tax when you sell the business, says Levi.

To make this arrangement official, you may need to amend your company's "member control agreement" — that is, the document that outlines the way the business operates. You and your father will need to agree on allocating the company's profits in a way that reflects your enhanced role at the company. In exchange, you might offer to pay him a "preferred return" based on the value of his investment.

Of course, he may want compensation for his share of the business right away. In this case, buying him out makes the most sense, says Levi. As soon as you purchase your father's interest in the business, the partnership will cease — making your company a single member LLC. Though, you'll still need to file your final partnership tax return, which will be due 3 1/2 months after the end of the month in which you concluded your partnership.