Convert from PC to LLC

[eilano]

We have a company that went from a corporation to a LLC (company is being taxed as a corporation). If one of the principals (now a partner) had an outstanding loan at the time of the company conversion are we correct that the partner has to pay back the loan asap?

[davef]

I believe you are correct. Although there isn't much "official" guidance in this area, most practitioners are treating LLCs similar to partnerships or S corporations for purposes of the plan loan rules. Thus, if the partner's loan continues to be outstanding after the conversion, there is a prohibited transaction.