Q: Hello, If I had an old dba, and I wanted to turn that into an LLC, would that cover old agreements under the dba?
If I had an old dba, and I wanted to turn that into an LLC, would that cover old agreements under the dba?
for example: I have an old dba named Billy Bob's Home Video Distribution. I have agreements dating back to the 90s under that dba. I want to form Billy Bob's Home Video Distribution LLC. Do I need to sign new agreements with the filmmakers to get the LLC protections, or would those automatically now be back-dated/protected under the LLC filing? And does this cover expired agreements too?
Please let me know, thanks!
A: Good question. The first part of the answer involves the simple availability of the name; but, given its largely unique name, you will probably have no problems registering it. Second, what is the consequence of you changing your business from (perhaps) a sole proprietorship or (perhaps) another entity that used the dba? You are generally allowed under law to assign almost any contract to another entity (e.g., your new LLC) pursuant to which the sole proprietorship may now enjoy the benefits of that contract. In other words, you may probably assign all of these kinds of rights under existing contracts to the new entity--often by simple notice to the other party to pay the LLC. (That should also involve someone reviewing your existing contracts to ensure that certain necessary notices, and other legal requirements, etc., are given and satisfied.) However, there are certain contracts according to which you are required (that is, for instance, the sole proprietorship) to give notice of an assignment and get consent from the other party, e.g., contracts that have personal obligations as a sole proprietor. These kinds of contracts generally require actual consent by the other contracting party as opposed to mere notice, as may be required under those contracts (described above) that obligate others to merely pay you. There are some important tax considerations regarding these assignments. For instance, your assignment from a sole proprietorship to an LLC may constitute an investment of capital or may be held on the books as a loan.
A: First, you have to ensure that you can create an LLC with that name -- the state does not allow similar names to be used to avoid fraud -- although it seems remote that you would have a problem given the uniqueness of your dba. The real issue, as I would describe my understanding of your problem, is whether the LLC can succeed to the interests of what I understand is a sole proprietorship. The simple answer is yes, but assignments are needed. Obviously, you will be asking existing payors to redirect payments to the LLC (although they might not even notice the change because of the common way of writing checks, which is to leave off the LLC). The procedure to assign the receivables to the LLC is simple, with one caveat: some of your existing contracts may require notice to be given to the payor. (In this respect, there may of course be other issues that those contracts may raise, e.g., to avoid default, some provisions could be amended in a simple letter agreement. But, you should have an attorney review your existing contracts, even more so regarding the second type of contract to assign the LLC, which I describe as follows.) The second type of contract is one in which you are performing some service etc. to a second party. In these contracts, you will likely need more than simple "notice", you may require the second party to actually consent to the assignment. Since these two types of contracts may actually be mixed (namely, you are performing "some" service to the payor), you should consult an attorney to handle these issues. (I would underline this by saying that, as I understand your situation, some of your contracts are very favorable and old, and you could be seriously harmed if the proper assignments are not done.
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