Question
If you have a NJ LLC and want to open a Delaware Corp, is it best to open the new entity with the same name and transfer the intangible assets (trademarks, website) into it or is there an adverse taxation for liquidating the LLC into the corp, where a conversion into a domestic Delaware Corp is better; keeping the same EIN number?
Answer
The answer to your question really depends on what your basis is in the LLC and that of its assets. There are three options: an asset-over transfer which is governed by Section 351 of the IRC in which the LLC contributes all of the assets into the C Corp for stock which is distributed to the member(s). Generally no gain or loss is recognized if no other property / money is given for the stock. That said, if the C Corp takes on more liabilities than assets from the LLC, then that would be treated as income under IRC Section 357.
Another option is an asset up which means that the LLC is first liquidated and then the member(s) contribute the assets to the new corporation. In this case, a gain would be recognized by the member(s) if the assets distributed to them are greater than its basis. Note the corp takes on the carryover basis of the assets.
Another option would be an interest over transfer which means that the member transfers their LLC interest into the Corp for stock. The treatment is very similar to the first option.
So, it kind of depends on the specific facts and circumstances. Note that the conversion part of your question where the LLC converts into a C Corp is the legal component to it and ensures that the entity is taxed as a C Corp going forward. It won’t necessarily address your concerns / questions on how the transfer works and the impact.
References: IRC Section 357
State: New Jersey
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