Legal Question in Business Law in Pennsylvania

Re: Converting dba to foreign llc

You asked how to merge a dba into an LLC.

You don't and you can't. A dba is not a separate business entity. It is the alter ego of the owner whether that is a person, a aprtnership or another entity. There is no entity there in a dba to merge. Remember, an entity is a means to limit liability to the owner(s). A dba is not an entity but only tells the world that so and so is using a fictitious name.

What you need to do is have the dba party contribute the assets s/he desires to contribute and the LLC will accept the liabilities it wishes to take on.

You may use either EIN but will need to inform the IRS of the moves when you do so, usually in the next required filings. As you know you will also need to obtain Pennsylvania state qualification and business registrations for the LLC.

None of this is simple and needs to be well documented to maintain the limited liability of the LLC. You should do this through a competent attorney and should not try to do it alone.

I would be glad to help you with getting your business up anbd running and help you with all sides of the necessary transactions. Please call me to discuss this further.

Regards,

Roger Traversa

email: [email protected]

Re: Converting dba to foreign llc

As the Pennsylvania attorney has pointed out, your minor confusion results from thinking of a proprietorship using a fictitious business name as being an entity. Think of the DBA as more like a trademark, and you'll be on the right track.

In a sense, the LLC is acquiring the business of the proprietorship in a merger, with the LLC the surviving "entity." The sole proprietor gets a membership interest in the LLC, and the LLC gets the assets of the proprietorship. Ideally, there would be a written agreement (could be very short and simple) between the LLC and the proprietor covering the transaction, indicating the money (if any) that changed hands, and whether the proprietorship liabilities are assumed by the LLC or continue to be the responsibility of the former proprietor.

As for the DBA, it is an item of property, although intangible, just like a patent or copyright or trademark. It too should be scheduled as part of the property being acquired by the LLC in consideration for the membership interest given the proprietor. Then, the LLC should take steps to file and publish the DBA as a name being used by the LLC. Any prior inconsistent filings of the DBA (for example, any showing the DBA as being used by the proprietor) need to be canceled before the LLC tries to register the DBA. In California, all this is done via the county clerk in the county where the LLC has its principal place of business in California. Some states may handle fictitious business names on a statewide basis, e.g., through the Secretary of State's office, but in California it is done at the county (clerk) level.

As to the EIN issue, I believe that an LLC that absorbs a proprietorship should be the ongoing reporting party and that the LLC's existing EIN should be used rather than (a) using the sole proprietorship EIN, or (b) obtaining a new EIN. The IRS should be notified in writing that the proprietorship is making a "final" 940 and 941 filing, and the reason. If I recall, there is a box that can be checked on the forms to indicate that it is a final return, but I'd attach a letter of explanation as well, keeping a copy.