L.A. Athletic Club’s Parent May Convert to Limited Partnership

Laaco Inc., venerable owner of the Los Angeles Athletic Club, California Yacht Club, Riviera Country Club and other properties, said Friday that it is seeking to convert from a corporation to a limited partnership to lower its tax bill.

The Los Angeles-based company, which is about 67% owned by the Hathaway family of Los Angeles, thus joins a growing number of closely held firms converting to limited partnerships following last month’s passage of the Tax Reform Act of 1986.

Other companies converting or considering converting include Community Psychiatric Centers, a Santa Ana-based health-care concern, and Alexander’s, a New York-based retailer.

Under their current tax status, corporations are taxed twice, once at the corporate level and again at the individual level when dividends are distributed to shareholders. A limited partnership, however, is taxed only at the individual level, when distributions are made to the limited partners.

Also, under tax reform, corporations will be taxed at higher rates than individuals. The top corporate rate in 1988 will be 39%, compared to 33% for individuals.

Firms wishing to convert are trying to do so before year-end, because capital gains taxes will rise next year and because a sweeping new provision in the tax-reform bill will increase taxes on corporations liquidating themselves in order to become limited partnerships.

“Single taxation is the biggest thing” behind the conversion, said Frank G. Hathaway, Laaco’s chairman and chief executive. Because of changes in the tax law, converting now “would cost us a lot less than in the future,” he said, adding that it was unlikely the company would proceed with the conversion if it could not be completed by year-end.

Hathaway said it was “too premature” to estimate how much the conversion would increase the firm’s dividend and after-tax earnings. Such details, he said, would be available by next month when shareholders are expected to approve the conversion.

The company earned $5.1 million on revenue of $33.3 million last year.