For some of my clients, owning and running their own businesses has been a lifelong dream, and they’re ready to take their great ideas to the next level. Other clients are running established companies and want to make sure they’ve done everything they can to protect their businesses from liability and plan for continued success once they’re gone. As an entrepreneur and attorney, I’m in a unique position to help both of these types of business clients.
Choosing a Business Entity That Will Protect Your Bottom Line
When forming a business, the structure you choose will determine your options for protecting yourself and your company from liability, excessive taxation, and other drains on your assets. Business entities that may be available to you include the following:
- Limited liability company (LLC). With a limited liability company, your personal assets are protected from debt or liability faced by the business. An LLC also provides certain tax benefits, depending on whether the company is set up as a single- or multi-member LLC and which tax classification you choose when forming the company.
- C Corporation. Like an LLC, a C corporation offers limited liability for owners. Because a C corp is an entity independent of any owners, it offers additional advantages, including ease of transferability from one corporate owner to another. However, C corps may subject owners to double-taxation by requiring them to pay both corporate and personal income taxes. Proper tax planning can reduce or eliminate this burden.
- S Corporation. An S corporation is considered a pass-through entity for Federal tax purposes because earnings, losses, deductions, and credits pass through to its shareholders’ individual tax returns. S corporations protect against double taxation, while offering the benefits of limited liability.
- Partnerships. Partnerships are unincorporated businesses with more than one owner. Partnerships may elect pass-through tax status with the IRS so that they do not pay corporate income tax but instead pass profits and losses to the owners, who are taxed directly. Like an S corporation, this structure also avoids double taxation.
There are advantages and disadvantages to each of these entities, but I can help you choose the structure that will work best for your specific situation.
Protecting Business Owners From Corporate Liability
Despite forming a business under a limited liability structure, courts may still come after a business owner’s personal assets for company debt or wrongdoing in certain situations. This is known as “piercing the corporate veil,” and it can happen for a variety of reasons. If the court decides that there was never any real, legal separation between personal and business finances, it can hold the owner liable for corporate debt under the alter-ego doctrine. In other words, the court decides that the business is a sham or an alter ego for an individual. If a corporate entity breaks the law, a judge may also pierce the corporate veil. Some of this risk can be avoided by taking advantage of my experienced legal guidance when forming a company and implementing other legal strategies down the road.
Buy-Sell Agreements: A Prenup for Your Business
If your company is owned by more than one person, you need a contingency plan in case a partner dies or wants to leave. A buy-sell agreement is a contract that spells out how a partner’s share of a business will be reassigned if that partner leaves. I will discuss your options for this agreement and help you protect your interests when one or more partners leave.
Succession Planning and Exit Strategies
You have an estate plan to take care of your assets and your family if something should happen to you, but what about your business? I will help you create a comprehensive succession plan that:
- Controls the timing of your exit
- Maximizes your company’s value
- Minimizes, defers, or eliminates capital gains taxes
- Achieves your personal and business goals
- Preserves family harmony
- Facilitates your retirement
When you’re starting a new business, succession planning and exit planning are probably last on your to-do list, but life is uncertain, and you should always have contingency plans in place. Stephen Covey, author of The 7 Habits of Highly Effective People, had good advice when he said, “Start with the end in mind.”
Get to Know Attorney Mark Connell
Not only do I own and run this law firm, but I have also owned and operated other small businesses over the years, giving me valuable insight into what matters most when planning for the protection of company assets now—and when it’s time to leave the business. We don’t know what the future will bring for your small business, but we can put a plan in place today that considers every possibility. Fill out the contact form below, or give me a call at (203) 488-5586 to discuss how I can help you.