Michigan Estate Planning Blog

Corporations, Key Facts And Headaches To Avoid

Doing business is an activity. If you own a business, or are set to inherit a business, it is vital to know that you can continue to do business. Either way, remember to determine whether the business “structure” is the most appropriate. There is a significant difference between the C Corporation and the S Corporation. Fortunately, Forbes helps clarify the distinction in an article titled “Key Facts About Corporations, S Elections & Buy-Sell Agreements.” If nothing else, it might dissuade you from a “corporation” at all. Essentially, a corporation is always a corporation, but they do come in two flavors based on how you will be taxed. With an S corporation, the corporation will be “disregarded” and your personal profits from it will be taxed to you personally. On the other hand, a C corporation (generally larger in size) will be taxed as a separate entity all on its own before and in addition to any tax paid by owners. When you are doing business this taxation is clearly important (you hope to make some money, no?). However, when you are planning for the future and longevity of the business this is no less important. Perhaps some different business structures are worth considering. For example, you might jump for the newer, stylish and (maybe) more agile LLC or Limited Liability Company. If you have a corporation, then make sure you have a buy-sell agreement. The buy-sell agreement allows shareholders to agree how their shares will pass if one or more of them become disabled, retire or die. Otherwise, letting shares loose or in the wrong hands can even threaten the tax structure, never mind the health and longevity of the business in all regards. Then again, maybe you have a different plan for how ownership should transition. These are a few key facts worth knowing, and if you own or may soon inherit a business then there is much to learn about business ownership and business structure. There are many more key facts to know, and maybe there is work to be done in restructuring the business itself.

Reference: Forbes (March 18, 2014) “Key Facts About Corporations, S Elections & Buy-Sell Agreements”

For more information, see www.jerryreiflawyer.com

A Business “Break-Up” Between Co-Founders Saginaw, Michigan

Every beginning has an end, just as every business partnership will eventually expire. Whether the conclusion of the partnership is by choice, health problems, or death, one should have a plan in place to keep things amicable. As Stephen Covey noted so adroitly, one of the keys to effectiveness is to “begin with the end in mind.” Accordingly, the founders of a business should structure and run the business with a clear commitment to their shared ultimate goals for themselves and their business. In the vernacular of business planning, this oftentimes is called “exit planning.” If you fail to “begin with the end in mind” and make legal plans to memorialize the end game for your personal and business relationships, then you likely will only enrich lawyers. So, when it comes time to part ways down the road, what steps should you be taking now? The Wall Street Journal recently addressed this subject in an article titled “Breaking Up (With a Co-Founder) Is Hard to Do.” One key takeaway from the article is the “when and how” of exit planning. The best time to address the issue is when the business is founded. Consequently, the best way to memorialize the exit strategy in the event of the disability, retirement or death of a founder is through various legal documents created when the business is founded. For example, an Limited Liability Company (LLC) can use the LLC Operating Agreement, while a corporation may use its Bylaws or various Shareholder Agreements. Don’t delay this important aspect of planning, as every business with eventually need an “exit.”

Reference: The Wall Street
Journal (September 22, 2012) “Breaking Up (With a Co-Founder) Is Hard to
Do”

For more infosrmation, see www.jerryreiflawyer.com

 

A Business “Break-Up” Between Co-Founders

Every beginning has an end, just as every business partnership will eventually expire. Whether the conclusion of the partnership is by choice, health problems, or death, one should have a plan in place to keep things amicable. As Stephen Covey noted so adroitly, one of the keys to effectiveness is to “begin with the end in mind.” Accordingly, the founders of a business should structure and run the business with a clear commitment to their shared ultimate goals for themselves and their business. In the vernacular of business planning, this oftentimes is called “exit planning.” If you fail to “begin with the end in mind” and make legal plans to memorialize the end game for your personal and business relationships, then you likely will only enrich lawyers. So, when it comes time to part ways down the road, what steps should you be taking now? The Wall Street Journal recently addressed this subject in an article titled “Breaking Up (With a Co-Founder) Is Hard to Do.” One key takeaway from the article is the “when and how” of exit planning. The best time to address the issue is when the business is founded. Consequently, the best way to memorialize the exit strategy in the event of the disability, retirement or death of a founder is through various legal documents created when the business is founded. For example, an Limited Liability Company (LLC) can use the LLC Operating Agreement, while a corporation may use its Bylaws or various Shareholder Agreements. Don’t delay this important aspect of planning, as every business with eventually need an “exit.”

Reference: The Wall Street
Journal (September 22, 2012) “Breaking Up (With a Co-Founder) Is Hard to
Do”

For more information, see www.jerryreiflawyer.com