|
SEPARATION
OF BUSINESS AND PERSONAL
Using
business organizations is critical to separating business and
personal matters, from liabilities, to expenses, to tax deductions.
While there are many things to consider in choosing a particular
form of business organization, there are four considerations that
stand out as most important.
TOP
4 CONSIDERATIONS
Perhaps
the four most important considerations in choosing a particular
entity are:
1. Control-who has it and how to share it;
2. Taxation-in the line of thinking that less is generally better;
3. Limiting liability-shield owners personally from the debts
and liabilities of the business, the business from the debts
of the owners, and each owner from the other owners; and
4. Administrative costs to do business in any particular form-again,
less is generally best.
OPTIONS
The
most common business organizations are:
- Sole
Proprietorships;
- General
Partnerships;
- Limited
Partnerships;
- Limited
Liability Companies; and
- Corporations.
Each
of these have different characteristics, particularly as the Top
4 Considerations apply, and we have a free downloadable booklet
on our Business Owner's Resource Center
page that compares and contrasts them and for more specific information.
SPECIAL
PURPOSE ENTITIES
Texas
law also allows creation of these special purpose entities:
- Registered
Limited Liability Partnerships;
- Closely
Held Corporations;
- Cooperative
Associations;
- Professional
Corporations;
- Professional
Limited Liability Companies;
- Professional
Associations;
- Non-Profit
Corporations;
- Unincorporated
Non-Profit Associations; and
- Trusts.
The need or applicability of one of these limited purpose entities
will depend on the business, its operation, and in some instances
the qualifications and licenses held by the owners.
WHAT
IS YOUR EXIT STRATEGY?
It
is also important to consider how you expect to get out of the
business, whether by just shutting it down, or selling it to a
loyal employee, group of employees, a competitor or partner, or
completing an initial public stock offering. How you get out of
the business is almost always very tax sensitive, and it will
likely affect your choice of business entity and other organizational
matters on the front end. Choosing the right business organization
in the beginning can save you significant money in taxes on the
way out, and a competent certified public accountant should often
be consulted to help make this decision.
ISSUES
FOR MULTIPLE OWNER BUSINESSES
We
have structured many multiple owner businesses. Common issues
include how to share control, profits, and losses, and may also
include:
- what
happens to an owner's interest upon death or disability
- what
happens to an owner's interest upon divorce
- what
happens to an owner's interest if a creditor seizes that interest,
and how that would affect the other owners
Operating
agreements and buy-sell agreements can address these and other
issues. Please download our free booklet on Buy-Sell Agreements
on our Business Owner's Resource Center
page for more information.
BUSINESS
DIVORCES
We
have also counseled various owners in "business divorces",
including buyouts of partners/shareholders/members. A hostile
business divorce can be every bit as emotional as a marriage divorce.
This is one of the most difficult areas in which we practice.
RECORD
KEEPING
It
is important for a business organization to keep its legal books
in order and up to date. This is important for income tax purposes
to provide a basis for certain taxable events and deductions,
as well as more practical matters such as fulfilling a lender's
requirements. Minutes of either the Board of Directors or Shareholders
of a Business, as applicable (or for a Board of Managers and Members
for an LLC), are recommended for the following corporate actions:
-
The
Business has borrowed money
-
The
Business has lent money (including but not limited to lending
to an officer, director, or shareholder)
-
The
Business has sold or purchased real property
-
The
Business has leased real estate (either as landlord or tenant)
-
The
Business has purchased another business, limited liability company,
etc.
-
The
Business has sold one or more of its assets
-
The
Business has sold all or substantially all of its assets
-
The
Business has entered into a relatively important contract of
any kind
-
The
Business has entered into a contract that also involved one
or more of the Business's officers, directors, managers, members
or shareholders
-
The
Business has hired an officer (either by oral or written contract)
-
The
Business has or will compensate an officer or director, including
cash, deferred compensation, stock options, stock bonus plans,
etc., for service to the Business
-
The
Business has sued or been sued, or one of its officers, directors,
employees or agents has sued or been sued due to being an officer,
director, employee, or agent of the Business
-
The
Business has hired or intends to hire an accountant, whether
to audit its books, or to help it with an IRS audit, or for
some other purpose
-
The
Business has contributed to a qualified retirement or pension
plan
-
The
Business is holding money in reserve for future growth or acquisitions
-
The
Business has or will make a charitable contribution
- The Business has declared or paid a dividend or distribution
We
routinely review a business's records and help keep them up to
date.
FOR
MORE INFORMATION
Please
visit The McTexLaw Business Owner's Resource
Center for more information, free downloads, and interesting
cases and articles.
CONTACT
US
Please
E-mail us for more information
or if we may be of service to you in any of these areas. |
