Moving customers from one LLC to another.

[MikeH]

Hi,

Quick question.

I am a business consultant, currently attempting to fix a business with some major issues.

Bit over a year ago, they created a second LLC in order to move one of the industries they serve there.

Over the last year they have gradually (and recently completed) moving all the applicable customers over to the new LLC.

However, during my research i came across something that registered as 'fail' in my head.

They have pre-paid customers next to their normal customers. These customers pay one year ahead, and are invoiced for that single payment.

Some of these customers were moved to the new LLC and any overages the customer had were invoiced on the new LLC, not the original LLC they paid in the first place. This is not even mentioning adjustments and credits applied to the customer due to outages and other issues where the service was dead in the water for a bit of time.

Can you bill a customer of another LLC (past invoicing has to remain at the old LLC of course, so until the customer pre-pays again, it remains a customer of the original LLC, in my opinion), and apply that bill (be it an overage, adjustment, credit, etc) on the new LLC?

It seems extremely messy to do so (each LLC is a seperate database in their, crappy, accounting software) and i wonder how the IRS would look at this.

There just seems to be something wrong here, but i am simply not sure what is allowed and what not in this regard, never had to deal with this particular situation before during the last 12 years of my career.

Thanks in advance,

Mike

[BusinessAdviser]

Well of course. You can bill anyone for services rendered. What kind of business consulting do you do? This doesn't seem to be that difficult of a problem, so I'm wondering about your consulting experience.

[MikeH]

I specialize in infrastructure, people management, and information technology, so, hardly a specialist on accounting issues, at least as far as laws and such go.

I am also not American, and more than half of my experience was accumulated in Europe, where things are quite different.

The issue that struck me as odd is that these customers are contracted under the original LLC, not the new one.

Since each LLC is a separate entity, my (obviously, European) instincts registered this transferring of customers to an LLC which is not the one the customer is contracted with as 'wrong', since there is no contract with the new LLC, the new company is billing a customer for services rendered under contract with the original LLC.

As a matter of fact, i don't know how one could transfer customers from one LLC to the other without a new contract to begin with.

I am probably entirely wrong with this feeling, but it just strikes me as odd. This particular client is also a larger mess than one can ever imagine, it is a miracle that they managed to turn a profit for over a decade.

Regards,

Mike

[BusinessAdviser]

Does the initial contract prohibit assignment of the contract?

[MikeH]

Well, that is one of the issues with this particular client, each and every contract is custom made, there is a base contract that they should be using to create the actual contract but it has become apparent that this was hardly ever the case. The base contract does contain a clause stating that the transfer/disclosure of customer information to another company is not allowed to ensure the privacy of the customer.

So, the answer is yes and no, depending on the sales person who created the contract, as well as the sales managers simply okaying the contracts without review.

Regards,

Mike