Formation

(Not-for-Profit, Corporation, Limited Liability Company)
           
Starting a business venture is exciting.  The process can also be confusing and legally complex.  Proper business formation is paramount; the consequences of improper formation can be devastating.
 
Estate & Business Law Group has been representing entrepreneurs for more than 30 years, from family-owned “mom and pop” operations to large franchises with nationwide locations.  We help business owners design, implement, and maintain effective plans to reduce personal liability, preserve viable income tax deductions, retain key employees, and facilitate the owner’s retirement.
 
Corporations: In a corporate structure, shareholders own the company, board of directors oversee operations, and officers run daily operations. 
 
The central advantage of establishing a corporation is shareholder protection from personal liability. With that, however, come corporate formalities that a corporation must follow.
 
There are two categories of corporations for tax purposes.  C Corporation is automatically formed when a business decides to incorporate. Corporations must file paperwork with the IRS to have S Corporation status. 
 
In S Corporations, taxation “passes through” to company owners who report earnings on their personal income tax returns.  In this taxation scheme, there is no business level tax filing. C Corporations have double taxation – they must file taxes with the IRS, and owners must report dividend earnings on their personal tax returns.
 
Estate & Business Law Group knows the latest laws regarding corporate formation and taxation.  We meet one-on-one with our clients to gain understanding of their current situation and goals for the future.  We work with them to create robust plans, so that their companies will not only survive in this tough economy – they will thrive.
 
Limited Liability Company (LLC)- A LLC generally provides the same liability protection as a corporation, but it has different tax consequences.  The LLC formation process can be complicated.  Additionally, the law surrounding LLC operations and formalities is not altogether settled.
 
Estate & Business Law Group aims to provide stability and predictability to this process. We prepare and file the Articles of Organization with the Secretary of State.  We will help you obtain necessary licenses and permits to form your LLC from local, state, and federal governments, as well as the IRS.  We provide a successful framework for LLC formation and beyond.
 
Limited Partnership (LP): A Limited Partnership is a business entity established under state law. Ownership of the partnership is broken into two classes of partners—general and limited. The distinction between a general partner and a limited partner is important because it determines whether you will have a say in the partnership’s management or whether you receive liability protection from the partnership’s activities. Limited Partnerships are frequently used by family members or business associates to facilitate transfers of assets to others, often at a discounted value that permits significant tax savings.


 

Not-for-profits:  Not-for-profit work is very rewarding, yet starting these businesses can be confusing, especially when it comes to legal filings with the IRS.  Not-for-profits have strict formalities, including the following:

  • Articles of incorporation filings

  • Board of director appointments

  • Bylaws

  • Business license

  • Submission of application to IRS for recognition of income tax exemption

  • Annual reports of officers and directors with the Secretary of State

 
Estate & Business Law Group will identify necessary formation documents and explain filing procedures.  We work directly with our clients to ensure that their non-for-profits have the best start possible.


 


FREQUENTLY ASKED QUESTIONS ABOUT LIMITED PARTNERSHIPS

What exactly is a Limited Partnership?

What are the liability protections provided by a Limited Partnership?

What are the tax benefits provided by a Limited Partnership?

What factors need to be considered before establishing a Limited Partnership?

How do I know if a Limited Partnership is right for me?





























 


What exactly is a Limited Partnership?

A Limited Partnership is a business entity established under state law. Ownership of the partnership is broken into two classes of partners—general and limited. The distinction between a general partner and a limited partner is important because it determines whether you will have a say in the partnership’s management or whether you receive liability protection from the partnership’s activities. Limited Partnerships are frequently used by family members or business associates to facilitate transfers of assets to others, often at a discounted value that permits significant tax savings.

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What are the liability protections provided by a Limited Partnership?

An important aspect of limited partnerships is that only general partners, not limited partners, have any say in the management of the partnership. This means that the general partners (usually the parents or older generation) entirely control it and are the only ones personally liable for the partnership’s business dealings. 

Since the limited partners have no say in the partnership’s control or management, normally they are not personally liable for partnership liabilities except to the extent of their investment in the partnership. A Limited Partnership offers important asset protection planning opportunities for those seeking to protect their personal assets.

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What are the tax benefits provided by a Limited Partnership?

A Limited Partnership provides significant opportunities to reduce your estate taxes. In fact, many partnerships are created principally because the partners receive significant accounting discounts in the value of property transferred to the partnership.
The greater the discounted value of the property transferred to the partnership, the lower its taxable value for gift and estate tax purposes.

The ability to discount an asset’s value when transferred to a Limited Partnership is a result of how assets are valued on the free market. The Internal Revenue Service and Tax Courts recognize that the fair market value of an asset over which you possess total control is greater than the fair market value of an asset over which you possess little control. No one would pay the same price for a business controlled by others (even family members), as they would pay for a business they could run as they pleased.

A Limited Partnership may be an attractive estate planning tool because, due to the limited partner’s lack of control over the management of partnership assets, a legitimate discount in the asset’s free market value will be available for their interest in the partnership.

Generally speaking, the less control a limited partner has in the partnership, the greater the valuation discount given. In order to obtain the maximum discount, many partnership agreements intentionally contain many restrictions on the rights of limited partners to be involved in partnership decisions, to withdraw from the partnership, and even on their right to sell their partnership interests. Such partnership restrictions must not be more severe than those permitted by state law or they will be disregarded for the calculation of any discount. 

Limited Partnerships can also be coupled with gifting strategies to help you reduce estate taxes. To accomplish this, you would first create a Limited Partnership and transfer assets (such as a family business) to it. Then over a period of years you would slowly transfer partnership interests to your children who are made limited partners. The value of the partnership interests transferred is intentionally kept below the annual gift tax exemption amount to avoid any gift tax liability. When done correctly, this strategy can transfer a significant part of the estate to the children gift and estate tax-free while keeping the parents in total control.

A Limited Partnership can also be used by families to provide income tax savings to family members. Subject to certain restrictions, the members of a Limited Partnership can allocate income and deductions among the general and limited partners in any agreed upon way. This ability to allocate income to individual partners permits a family to distribute partnership income to lower tax bracket members.

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What factors need to be considered before establishing a Limited Partnership?

Before organizing a Limited Partnership, you should seek the advice of your estate planning attorney concerning a multitude of issues. Those issues include selection of the general partner and deciding who will be responsible for the partnership’s day-to-day management. 

Also, since a general partner has unlimited liability for partnership liabilities and losses, the desires of the partners concerning liability for the partnership’s business transactions and their desires regarding the protection of their personal assets from partnership liabilities must be examined. Additionally, the level of trust that the partners have in each other must be considered because the actions of one general partner can legally bind the others.

Taxation of business entity issues must also be examined. Limited partnerships are a flow-through entity. This means that the partnership’s income and deductions are reported on each partner’s individual tax return. The partnership itself pays no federal income tax, a significant benefit over corporations, which normally are taxed at the corporate level.

Other tax ramifications should also be considered. Organizing exclusively as a Limited Partnership may foreclose some tax planning opportunities, particularly in the area of employee benefits. A careful planner will make you aware that a corporation can serve as a general partner. 

This option may be appropriate because a corporation can provide employee benefits and other planning opportunities not available to partnerships. If a corporation is chosen to act as the general partner, it is possible to have the corporate general partner elect “S Corporation” tax status. This would also provide an opportunity for flow-through taxation at the individual level.

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How do I know if a Limited Partnership is right for me?

A Limited Partnership is an excellent tool that empowers you to maintain control over assets while at the same time offering you the flexibility needed to devise and implement a sound estate planning strategy that can deal simultaneously with a multitude of business and family issues. These issues require an analysis of your assets, your business succession desires, how control over the partnership is to be allocated between general and limited partners, the asset protection consequences, and the estate, gift, and income tax ramifications.

Of course, by itself a Limited Partnership is not a complete estate plan. It works best in conjunction with your Revocable Living Trust and other planning documents to make sure that your estate planning desires are completely fulfilled. It is important to discuss these serious issues in depth with your estate planning attorney before deciding whether a Limited Partnership is an appropriate tool in your estate plan. Although we live in a time when many less than scrupulous individuals are trying to sell fill-in-the-blank partnership forms, only a qualified estate planning attorney will be able to help you sort out your options and tailor a plan that will best protect your family.

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