Many prospective business owners are not clear on the distinction between entity formation and entity taxation. It is common for clients to say that their accountant advised them to form an S-Corp, and then balk at the idea of a Limited Liability Company (LLC). The fact is, you can have both.
A corporation or an LLC are formed under state law. An owner may select a particular business entity because of how it affects ownership, liability, or asset protection. After selecting an entity type, the business then makes a tax election under federal law. That election will determine how the business is taxed. It is common for an LLC formed under state law to elect taxation as an S-Corp.
LLCs have become the most flexible and preferable entity for most operating businesses. They combine tax planning flexibility with administrative simplicity, legitimate asset protection, and a built-in plan for succession of interest after the business owner retires or dies.
LLCs also provide a powerful tool for estate planning. Families who may not operate going businesses can still benefit from the protection and flexibility that LLCs provide by creating a proven and reliable structure to manage and distribute family property to children or future generations.
Our law firm is ready to assist you with understanding and navigating the business formation process. Formation steps will generally include choosing and registering your business name, selecting a corporate entity type, filing a certificate of formation, appointing agents, preparing operating agreements, coordinating publication requirements (if any), drafting employee agreements and handbooks, designing a corporate governance structure, and complying with other tax and regulatory requirements. It is critical to establish the right entity for your business, and to do it properly. We will help you form your business, get you in a position to start growing, and then represent you along the way.
Business Succession Planning
Planning for the continuing operation of businesses, in the event of death, incapacity or termination of shareholders and other partners, is an essential piece to the overall function and operation of a business. A proper business succession plan will help your loved ones avoid conflict and dispute in the event you pass and your business is still operating.
Have you been looking forward to the day you can retire, and perhaps turning your business over to a son or daughter, or selling it? Even if you are not planning to stop working, you need to plan for the day you cannot run your business due to unforeseen illness or death. Most business owners do not take the time to plan for how they will leave their business. They are busy running the company, or they don’t know where to start. But if you continue to own a business until you die, it will be included in your estate and could be subject to substantial estate taxes. Your family could be forced to sell the business or its assets at ‘fire sale’ prices.
Planning for how you will exit from your business should be an integral part of your estate and retirement planning. Proper planning now can provide you with retirement income, reduced income and estate taxes, and even let you benefit a charity if you so choose, regardless of whether you transfer your business to family members at discounted values, to employees, or to an outside buyer.
Planning now to exit your company will result in you and your family receiving the best possible results, both now and after your retirement, disability or death. You can receive retirement income; you can transfer your business to your family, your employees or an outside buyer; you can make a difference for a charity or your community; and you can do all of this with reduced income, gift and estate taxes.
A Buy-Sell Agreement (BSA) is a lifetime contract providing for the transfer of a business interest upon the occurrence of one or more triggering events as defined in the contract itself. For example, common triggering events include the retirement, disability or death of the business owner. An interest in any form of business entity can be transferred under a BSA, to include a corporation, a partnership or a limited liability company. Also, a BSA is effective whether the business has one or multiple owners.
As a contract, a BSA is binding on third parties such as the estate representatives and heirs of the business owner. This feature can be invaluable when the business owner wants to ensure a smooth transition of complete control and ownership to the party that will keep the business running after a triggering event. Subject to certain Family Attribution Rules under Internal Revenue Code § 318, a BSA can help establish a value for the business that is binding on the IRS for federal estate tax purposes as provided under Internal Revenue Code § 2703.
Contract Drafting and Review
Good contracts are a necessity for any business. Contracts must be carefully negotiated and precisely written to address potential risks and to ensure the performance of all parties. Effective contracts should be very clear and concise in order to prevent misunderstanding of the parties’ intentions at the beginning of a business relationship.
Our law firm is ready to assist your business with excellent contract drafting, interpretation and review. Types of agreements that we can assist you and your business with include:
- Operating Agreements
- Shareholders’ Agreements
- Partnership Agreements
- Employee Agreements
- Compensation Agreements
- Contractor / Consulting Agreements
- Lease Agreements
- Confidentiality / Non-Disclosure / Non-Compete Agreements
- Customer and Vendor/Supplier Agreements
- Performance ContractsSettlement Agreements
Contract General Counsel Services
Most small businesses do not have the work load or the financial resources to employ a full-time attorney or establish an in-house legal department. There are benefits, however, of having an attorney who knows your business well and can provide a variety of general counsel services for your business on an as-needed basis.
Our law firm can assist your business by providing excellent general counsel services when you need them. Our firm provides personalized attention and services that are tailored around your needs and your budget. Examples of the types of general counsel services that our law firm provides include:
- General Business Counseling
- Advising on business plans and strategies
- Performing due diligence around business opportunities
- Advising on corporate governance alternatives and assisting to implement a governance structure
- Attending Board meetings and serving in the role of Board Secretary
- Advising on corporate records, retention policies and reporting
- Providing support for strategic projects and initiatives
- Document Preparation and Review
- Various business contracts and agreements
- Employee and independent contractor agreements
- Employee handbooks
- Company policies and standard forms
- Intellectual Property Protection
- Trademark registrations and portfolio management
- Copyright registrations
- Patent portfolio management
- Patentability opinions
- Technology transfer agreements
- Risk Management and Compliance
- Monitoring regulatory requirements, risks and compliance
- Site inspections and general risk assessments
Business Consulting Services
In addition to providing contract general counsel services, our law firm also provides general business consulting services for companies of all sizes. We have many years of experience working with companies to effectively advance their strategic and operational plans. Consulting services may be provided in conjunction with a client’s on-going project or initiative, or consulting services may be on a more limited, as-needed basis such as facilitating a leadership planning session.
Examples of the types of consulting services that the firm can provide in support of your business objectives include:
- Leadership coaching
- Meeting planning and facilitation
- Program/project visioning and planning
- Program/project management
- Strategic communications
- Organizational change management