They are not identical, but a company can be both for federal tax purposes. An LLC can elect to be taxed as an S Corp, using Forms 8832 and 2553. Most LLCs file under Subchapter K, but for whatever reason, they can elect (through a simple 'check the box' method) to file under Subchapter S.

I don't know if it's been said or not but why not start over since all you'll probably need is a change of ownership or name?

Sorry, yes, you're right. I was thinking you can't be both a corporation and an LLC under state law, which is the case. You're talking about S Corp treatment for tax purposes for an LLC. I'm not enough of a tax guru to know why you'd want to do that, but apparently you can.

Sorry.

Hey NewChief -- did this situation work out ok for you? Obviously you don't need to share too much if you don't want to, but I came across this thread looking for something else, and it made me wonder.

Sadly, it's still ongoing. The positive part is that we agree that all the factors of negotiation would be handled for the year 2012, so we're financially separate from our former partner as of 1/1/2013.

We're still in the process of affixing a value to the business for the year 2012, though. Things got very ugly for a while, but they've moved away, causing a lot of the anger to dissipate. We're going to pay them something just to be "fair," but we've yet to determine that amount. Our basic idea is:

Value of inventory as of 12/31/2012 plus amount in bank as of same date.
Subtract outstanding liabilities (invoices that hadn't been paid for 2012, CPA fees, taxes, remainder of lease, etc..).

Divide by 2 then subtract any money that the partner pulled out over the year of 2012 as payments to herself.

So you're letting them skate on the lease? If their name is on it, you should use that as leverage if they want to drag this out.

We are subtracting their half of the remaining lease payments (3months) from their payout.

Sounds like a reasonable resolution. Sorry it has dragged on so long though.

I dont' remember how it's organized, but if there were filings with the state (for a corp or LLC) then be sure to make any necessary filings to update the fact that she is no longer an officer/partner/owner of the company.