Transferring Assets to an LLC: Everything You Need to Know
Transferring assets to an LLC is a fairly simple process. It's much like transferring ownership to another person.3 min read
2. Steps for Transferring Assets to an LLC
3. What Is a Fraudulent Transfer of Assets?
Transferring assets to an LLC is a fairly simple process. Because LLCs (limited liability companies) are viewed as entities that can own property just like individuals, transferring assets to an LLC is much like transferring ownership to another person.
How to Transfer Assets to an LLC
LLCs can acquire assets just like corporations and limited partnerships can. There are some differences between these three types of business structures, but, with few exceptions, they have property ownership rights in common. Corporations have officers and directors, limited partnerships have limited and general partners, and LLCs have members and managers.
Assets with titles will require a bill of sale and new title work filed. You'll also need to refile for deeds of trust at the DMV in the appropriate county. Other, simpler items without titles, like cash just require a bill of sale.
Steps for Transferring Assets to an LLC
First, you'll need to hire an attorney to draft a deed that conveys the property to the LLC from the selling party. All LLCs are legally allowed to purchase and sell property in various forms, including real estate. Some LLCs may not be able to own property, but that's only if their operating agreement prohibits it.
In the event that the LLC is also taking over the insurance coverage for the property, the insurance company might need you to provide copies of the LLC's formation documents and a certificate of consent signed by the LLC's members. This will prove that all of the LLC members are on board with the acquisition of the asset.
Next, prepare a bill of sale. If an LLC is purchasing personal assets from another business, the bill of sale should be drafted by the selling party and given to the LLC. You'll want to include the following information in a bill of sale:
- An itemized list of everything transferred in the sale (equipment, vehicles, etc.)
- Date of sale
Other specific rules might apply depending on the type of assets being transferred. Create a checklist to make sure you don't miss any requirements.
After drafting a bill of sale, you'll need to obtain a leasehold interest on the asset if it's real estate property. If tenant rights are being assigned or transferred to another party, you'll need consent from the owner of the property.
If you're looking to convert your partnership into an LLC by transferring your assets to it, you'll want to complete the process by filing the forms required for this change by the state in which you plan to conduct business. Some states will automatically transfer all of the partnership's assets to the LLC without requiring you to do all of this leg work. You'll still want to make sure that all of the appropriate documents are filed with the county records office.
What Is a Fraudulent Transfer of Assets?
Individuals who are not defaulting on any loans or agreements with normal debts should have no problem conducting an asset transfer to an LLC. But, if an individual tries to transfer assets to get out of paying debts or following through on contracts, this could be considered a fraudulent transfer of assets.
As long as the assets are transferred for legitimate reasons, it's likely that the transfer will be fine in the eyes of the courts. Many business owners are simply restructuring their company or starting a new business. These are good reasons to transfer assets. However, some business owners have tried to transfer assets in an attempt to defraud others. The best way to make sure that your transfer goes off without a hitch and is viewed as legal is to hire an experienced business attorney to help you handle the process.
Thorough documentation is another great way to avoid any issues. Get any bills of sale notarized with a certified date of sale. This will ensure that any future questions regarding the legitimacy or intentions of the sale can be clearly answered. Notaries are easy to find and the notarization process is relatively easy. You'll be thankful that you covered all of your bases if an issue ever comes up in the future.
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