Merging an LTD with an LLP

Merging an LTD with an LLP

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Client is the sole director and shareholder of a company providing accounting services. He now wishes to merge his practice with that of an existing LLP, so that either he or his company would become a member of the LLP.

I am concerned that the transfer of his existing client base would cause either a capital gain for the company, or a tax charge on him as a distribution, or possibly both. Normally I would try to argue that the goodwill is personal to him and therefore has no separate value, but accounting practices do in fact have a market value as they are regularly bought and sold.

Goodwill has no value in the books of the company as the practice was built up from scratch in the company.

Any tips on this one?
EM

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By User deleted
04th Nov 2008 17:17

That's what I thought
Yes, that's what I thought might work, but only as long as the profit on those clients is paid as a partnership share to the company. If the profits were to be diverted to the shareholder/director as a member of the LLP, then I was concerned that would be treated as a distribution to him?

Also, not sure how it might work if profit from those clients was also shared with other LLP members - would this be a disposal of goodwill by the company?

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By mbuffery
04th Nov 2008 15:24

make the company a member of the LLP
Since an LLP is completely tax transparent, you could make the company a member of the LLP, with its capital contribution being the value of the business. All you then have to do is to agree the method of profit sharing, given that it is possible for the director to also become a member of the LLP.

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