LLC divides into 3 entities; how do you divide retained earnings?
A bookkeeper takes on a client case: The original Master LLC (operating under the name XYZ) is split into three entities, where Master LLC wholly owns XYZ LLC and also establishes ABC LLC (with Master holding 50%). This article explores the principles for allocating retained earnings at the time of the split, noting that there is no unified legal standard, and it mainly depends on the decisions and agreements of the company's owners, while also needing to comply with relevant tax and corporate law regulations.
I am a bookkeeper who recently took on a client that is separating an LLC into three.
They were: Master LLC with a dba of XYZ
They are now:
- Master LLC owns - XYZ LLC 100%;
- A split off service ABC LLC 50% owned by Master LLC.
Is there a single, right way to divide out the original LLC’s retained earnings/profit into the new companies? Or is this at the decision or will of the company owner?
I feel like I should know the basics before I enter into a discussion with the business owner about how to proceed.