About David K. Staub Expertise I am a business and tax attorney and have spent more than 30 years assisting people with contracts in a wide variety of business situations. I can answer questions about basic contract issues. My experience includes almost all common contracts including employment agreements, contracts for the purchase and sale of a business, shareholder agreements, partnership agreements, LLC operating agreements, leases, software development agreements, distribution agreements, franchise agreements, joint venture agreements and software license agreements, to name a few. I can also direct people to sources for answers to specific legal questions which cannot be answered in a forum of this nature.
Experience
Experience in the area I have been an Illinois business attorney for almost 30 years. I have an extensive practice in the mergers and acquisitions area and have been involved in the tax and legal issues on hundreds of business transactions.
Organizations Illinois State Bar Association;
Chicago Bar Association (former Chairman of the Corporation & Business Law Committee and former Chairman of the Mergers and Acquisitions Subcommittee; former Executive Committee member, Federal Tax Committee and Chairman of subcommittee on general tax issues); Glenkirk Foundation (Trustee; Vice-Chairman/Strategic Planning); Association for Corporate Growth, Chicago Chapter; Midwest Entrepreneur Forum; Midwest Association of Alpha Delta Phi - President
Publications Commerce Magazine; YLS Journal; ISBA Section of Taxation Newsletter
Education/Credentials Harvard Law School, J.D., 1977; University of Illinois, B.S. in Accounting, with highest honors, 1974
Disclaimer Responses are intended to be informational only. No response is intended to constitute legal advice or create an attorney-client relationship. Online advice is not a substitute for consultation with an attorney.
Question QUESTION: Hi David,
My wife owns a Nail Salon in Carroll county, Maryland. She is sole owner and now she change it to a Single Member LLC. She has done everything, got a new EIN, new Bank Account,new Merchant Account...untill the last step is updating her Salon License with the State Board. She fill out the form but the State Board also require a Use and Occupancy Permit or a Written Authorization. She went to the Zoning Office to get the Permit. Here, she was told that she have to apply for that Permit, pay the Fee, wait for the Inspector come to inspect the Shop and if everything OK they will issue the Use and Occupancy Permit. Is that suppose to be that way to update a Salon License in Maryland. (I mean that you have to get a Use and Occupancy Permit, have Inspectors come to your shop inspects all the plumping, electrical!!!). This doesn't make sense to me at all. Now we stuck, please, your advices will greatly be appreciated.
Ty
ANSWER: Ty,
Unfortunately you discovered one of the most over-looked pitfalls in transferring assets of a sole proprietorship to a single member LLC. While the single member LLC is ignored for Federal tax purposes, it is a new entity for state law purposes. Many permits and licenses are non-transferable (as are some contracts, like many franchise agreements). So even though it seems like a simple matter to convert a sole proprietorship to an LLC, the permits and licenses can trip you up.
I don't know for certain whether the information that your wife got is correct, but I suspect that it is.
If it is, you may not be stuck. Since a transfer to or from a single member LLC is ignored for tax purposes, I would suggest that your wife transfer everything back to herself until the Salon License is issued to the LLC. Don't terminate the LLC or close its bank account or merchant account. Just let them sit idle while your wife runs the salon under her sole proprietorship. As soon as the Use and Occupancy Permit is issued and the Salon License granted, she can start using the LLC.
Good luck.
---------- FOLLOW-UP ----------
QUESTION: Hi David,
Thanks for your quick reply, I really appreciate it. I've got another question. Since she has already used the new Bank and Merchant Account, so is there any Tax problem if she just use her old Salon License. Thanks in advance for your advices.
Ty
Answer From a federal tax standpoint it makes no difference. As far as the IRS is concerned, the single member LLC and the sole proprietorship are one and the same.
I would caution you that using the old salon license with the new bank account and merchants account could potentially create an issue if there is ever an attempt to pierce the corporate veil of the LLC. You need to maintain the LLC and the sole proprietorship as separate and distinct entities. Commingling any assets can be a factor in setting aside the protection of limited liability. Although the cases typically require more than a occasional slip-up, the fewer factors that a plaintiff can point out, the better. For reference, I have identified some of the key factors at http://www.illinoisbusinessattorney.com/articles/piercing_veil.html
