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

Employee Skin In The Game – Family Business Stock Great Lakes Bay Region, MI

Some businesses are family owned, but not run by members of the family. So, how do you make such non-family key employees act like they are owners? Give them skin in the game. The most common form of “skin” in the game is company stock. Done right, this approach can be a win-win for all parties involved. That said, great caution is due; beware, as described in a recent WealthManagement.com article titled “The Tyranny of Minority Shareholders.” Structuring your family business for the future is not an easy task. What of value in life is? While each company and family is different, making a key employee a part owner certainly can give them added incentive to run things when the family cannot or will not. On the downside, you can create tension between the family owners and the key employee turned minority shareholder. For example, conflicts can arise should the majority owners (i.e., the family members) take actions in their own self-interests without considering the concerns of the minority owners (i.e., non-family members). In some cases, a minority shareholder can be protected by state and federal laws as in the case discussed in the original article regarding the Empire State Building IPO. Even if you do not own an international landmark, there are many ways you, your family, your non-family executives, and, yes, your business, can find a happy medium. However, it takes time and qualified counsel to structure things correctly.

Reference: WealthManagement.com (June 20, 2013) “The Tyranny of Minority Shareholders”

For more information, see www.jerryreiflawyer.com

 

 

Employee Skin In The Game – Family Business Stock Saginaw, MI

Some businesses are family owned, but not run by members of the family. So, how do you make such non-family key employees act like they are owners? Give them skin in the game. The most common form of “skin” in the game is company stock. Done right, this approach can be a win-win for all parties involved. That said, great caution is due; beware, as described in a recent WealthManagement.com article titled “The Tyranny of Minority Shareholders.” Structuring your family business for the future is not an easy task. What of value in life is? While each company and family is different, making a key employee a part owner certainly can give them added incentive to run things when the family cannot or will not. On the downside, you can create tension between the family owners and the key employee turned minority shareholder. For example, conflicts can arise should the majority owners (i.e., the family members) take actions in their own self-interests without considering the concerns of the minority owners (i.e., non-family members). In some cases, a minority shareholder can be protected by state and federal laws as in the case discussed in the original article regarding the Empire State Building IPO. Even if you do not own an international landmark, there are many ways you, your family, your non-family executives, and, yes, your business, can find a happy medium. However, it takes time and qualified counsel to structure things correctly.

Reference: WealthManagement.com (June 20, 2013) “The Tyranny of Minority Shareholders”

For more information, see www.jerryreiflawyer.com

 

Business Succession – Have a Business “Hold” Your Business Saginaw, Michigan

When it comes to transferring a family business, there are quite a few ways to skin the proverbial cat. However, coming out ahead of the taxman is only one of the challenges you will face. Businesses exist on paper. Lots of it. Stationary letterhead, marketing materials, and the accounting books are the papers that may come to mind first. Nevertheless, don’t forget the all-too-often ignored “company books!” They provide the foundation and the structure of the business itself. Considering the form and structure of the business can be vitally important when planning to give the business to the next generation. In addition, you should be mindful of its current operations and even the value of the business. None other than The New York Times took up this issue in a recent article titled “Modern Safeguards for a Family-Owned Business.” The article offers an excellent introduction to the time-honored idea of a holding company. In short, a family can own a company by owning the company that owns that very company. Did you follow that? Said another way, while professional management can take care of the day-to-day operations of the business, the owning family can come together to exercise control over the higher entity – the holding company. If you’re no stranger to corporate structuring, then this is a familiar idea. Regardless, you never may have considered its application in terms of your own business and the family ownership. For many, this kind of structuring can be a first step in an overall succession plan for the business without finalizing the precise terms of the succession. Be sure to consult with competent legal counsel, as this is not a do-it-yourself project.

Reference: The New York Times (February 15, 2013) “Modern Safeguards for a Family-Owned Business”

For more information, see www.jerryreiflawyer.com

 

Business Succession – Have a Business “Hold” Your Business Saginaw, Michigan

When it comes to transferring a family business, there are quite a few ways to skin the proverbial cat. However, coming out ahead of the taxman is only one of the challenges you will face. Businesses exist on paper. Lots of it. Stationary letterhead, marketing materials, and the accounting books are the papers that may come to mind first. Nevertheless, don’t forget the all-too-often ignored “company books!” They provide the foundation and the structure of the business itself. Considering the form and structure of the business can be vitally important when planning to give the business to the next generation. In addition, you should be mindful of its current operations and even the value of the business. None other than The New York Times took up this issue in a recent article titled “Modern Safeguards for a Family-Owned Business.” The article offers an excellent introduction to the time-honored idea of a holding company. In short, a family can own a company by owning the company that owns that very company. Did you follow that? Said another way, while professional management can take care of the day-to-day operations of the business, the owning family can come together to exercise control over the higher entity – the holding company. If you’re no stranger to corporate structuring, then this is a familiar idea. Regardless, you never may have considered its application in terms of your own business and the family ownership. For many, this kind of structuring can be a first step in an overall succession plan for the business without finalizing the precise terms of the succession. Be sure to consult with competent legal counsel, as this is not a do-it-yourself project.

Reference: The New York Times (February 15, 2013) “Modern Safeguards for a Family-Owned Business”

For more information, see www.jerryreiflawyer.com

 

Business Succession – Have a Business “Hold” Your Business Saginaw, Michigan

When it comes to transferring a family business, there are quite a few ways to skin the proverbial cat. However, coming out ahead of the taxman is only one of the challenges you will face. Businesses exist on paper. Lots of it. Stationary letterhead, marketing materials, and the accounting books are the papers that may come to mind first. Nevertheless, don’t forget the all-too-often ignored “company books!” They provide the foundation and the structure of the business itself. Considering the form and structure of the business can be vitally important when planning to give the business to the next generation. In addition, you should be mindful of its current operations and even the value of the business. None other than The New York Times took up this issue in a recent article titled “Modern Safeguards for a Family-Owned Business.” The article offers an excellent introduction to the time-honored idea of a holding company. In short, a family can own a company by owning the company that owns that very company. Did you follow that? Said another way, while professional management can take care of the day-to-day operations of the business, the owning family can come together to exercise control over the higher entity – the holding company. If you’re no stranger to corporate structuring, then this is a familiar idea. Regardless, you never may have considered its application in terms of your own business and the family ownership. For many, this kind of structuring can be a first step in an overall succession plan for the business without finalizing the precise terms of the succession. Be sure to consult with competent legal counsel, as this is not a do-it-yourself project.

Reference: The New York Times (February 15, 2013) “Modern Safeguards for a Family-Owned Business”

For more information, see www.jerryreiflawyer.com

 

Mind the Details – Property Insurance Coverage and Estate Planning Saginaw, Michigan

Estate planning is more than creating a tool chest for wealth transfers. There must be careful coordination between many moving parts. For example, if you fail to mind the details of your insurance planning, then your estate planning tools may do more harm than good. A recent article in AdvisorOne provides a good reminder of the need to take care of the details when constructing your estate plan. The article, titled “Trusts and LLCs: Smart Ways to Transfer Wealth and Risk, but Mind the Details,” uses the example of trusts and LLCs to illustrate how even the best intended planning can go astray. These common entities are often used by estate planning attorneys to protect client assets from probate and creditors, and they are also used to transfer the assets to loved ones after death. Unfortunately, unless the assets are properly retitled, the full benefit of the planning may not be realized. In addition, unless various insurance carriers are notified that the trust or LLC is now under a new owner (or additional insured), there may be challenges in the event of a future claim. Example: if the family home is transferred into a Qualified Personal Residence Trust (QPRT), but the property casualty policy is not updated to reflect this transfer. Insurance is underwritten with the listed owner in mind. If you transfer an insured asset to a legal entity, then you might invalidate the insurance coverage. The point is that there are no half-measures in planning for your estate. Perhaps this might be a good time to review your assets, your estate planning and your insurance coverage?

Reference: AdvisorOne (February 21, 2013) “Trusts and LLCs: Smart Ways to Transfer Wealth and Risk, but Mind the Details”

For more information, see www.jerryreiflawyer.com

 

Business Succession – Have a Business “Hold” Your Business Saginaw, Michigan

When it comes to transferring a family business, there are quite a few ways to skin the proverbial cat. However, coming out ahead of the taxman is only one of the challenges you will face. Businesses exist on paper. Lots of it. Stationary letterhead, marketing materials, and the accounting books are the papers that may come to mind first. Nevertheless, don’t forget the all-too-often ignored “company books!” They provide the foundation and the structure of the business itself. Considering the form and structure of the business can be vitally important when planning to give the business to the next generation. In addition, you should be mindful of its current operations and even the value of the business. None other than The New York Times took up this issue in a recent article titled “Modern Safeguards for a Family-Owned Business.” The article offers an excellent introduction to the time-honored idea of a holding company. In short, a family can own a company by owning the company that owns that very company. Did you follow that? Said another way, while professional management can take care of the day-to-day operations of the business, the owning family can come together to exercise control over the higher entity – the holding company. If you’re no stranger to corporate structuring, then this is a familiar idea. Regardless, you never may have considered its application in terms of your own business and the family ownership. For many, this kind of structuring can be a first step in an overall succession plan for the business without finalizing the precise terms of the succession. Be sure to consult with competent legal counsel, as this is not a do-it-yourself project.

Reference: The New York Times (February 15, 2013) “Modern Safeguards for a Family-Owned Business”

For more information, see www.jerryreiflawyer.com