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#1842252 - 08/13/13 09:17 PM New entity = start up?
Brad B Offline
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Brad B
Joined: Apr 2002
Posts: 213
KS
Does a new entity equal a start up business for revenue reporting? For example, an LLC makes widgets and exceeds $1 million in gross annual sales. The owner of the LLC decides to retire and sells the operation to a new owner. The new owner establishes a new LLC and will continue making widgets as the prior LLC did. Would I report a loan to the new LLC as a "1" because they don't have any actual revenue to date yet under that entity name? Do I report the loan as a "2" using the historical revenue from the prior LLC? Our credit decision includes an analysis of the prior LLC revenues but in my mind that is more or less a proforma for the new LLC. Thoughts?
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CRA
#1842302 - 08/14/13 03:57 AM Re: New entity = start up? Brad B
Len S Offline
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Joined: Oct 2004
Posts: 2,084
Connecticut
The only basis for recognizing revenue is the actual revenue achieved by the business. It is not a budget or a pro forma profit and loss statement. In a situation involving a new entity you would use only the revenue to date. If the business has not started operations it would be zero and the GAR would be a code 1
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#1916859 - 04/23/14 05:34 PM Re: New entity = start up? Brad B
Colorado Girl Offline
Member
Joined: Mar 2013
Posts: 67
May I bring this one back please? What if an Inc becomes an LLC (new EIN) for tax purposes. We have NEW ENTITY on our system and have $0.00 reported for GAR, but we know that they made $1.5 million last year under the Inc. All owners are the same, clients are the same, business is the same...
Thanks for your help on this one!

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#1916894 - 04/23/14 06:14 PM Re: New entity = start up? Brad B
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,293
In your case, Colorado Girl, I would not treat this as a new entity. We will see what others say, but in the spirit of the regulation, your customer is going to continue to do what they have been doing and if their total gross revenue was over or under $1MM there is no reason that would change merely due to a new org type. Other factors can change that (lack of sales, more sales) but that would happen regardless of the legal formation change. The purpose of this reporting is to determine if you are making small loans to small businesses or small loans to big businesses. Even in the first case (new owner) I think reporting 0 is artificial for this purpose but it is what it is.
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#1916901 - 04/23/14 06:21 PM Re: New entity = start up? Brad B
Colorado Girl Offline
Member
Joined: Mar 2013
Posts: 67
Thank you KB! I agree with you! I would not feel comfortable defending this with an examiner as a new business when I know different!

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