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Sole Proprietorship to LLC or C corporation

1. Your client has operated a sole proprietorship for several years and is now interested in reaising capital for expansion. He is considering forming either a C corporatoin or an LLC.

a. Describe the treatment of an LLC and discuss any advantages the LLC offers over eht C corporation.

b. Assume instead the clinet has previously operated the business as a C corporatino. Describe the tax consequences of converting it to an LLC.

2. What is the significance of "hot assets" in the sale or exchange of a partnership interest?

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Question 1a
Under an LLC, the owner can elect for a corporate tax treatment or a pass-through entity which means that the taxes will be paid by the LLC owners. Moreover, income of the LLC is not considered as earned income of the owners and hence, not subject to self-employment ...

Solution Summary

Sole proprietorship to LLC or C corporation is examined. THe significance of a "hot asset" is discussed in the sale or exchange of a partnership interest.