Though you can be in business without setting up a legal entity, we don’t recommend it. The following points will help you decide on the best entity for your operation. 1. Human Error Carrying on business without a business entity means that each of the owners is 100% personally responsible for all of the business’s liabilities. That isn’t good. A business entity [corporation, limited liability company (LLC), or limited liability partnership (LLP)] protects the owners from personal liabilities, except professional liabilities and personal wrongdoing. 2. Pass the Buck The tax code divides corporations into C corporations and S corporations. The main difference is that with C corporations, the corporation pays income tax on its net income and the shareholders also pay income tax on dividends. With S corporations, such as LLCs and LLPs, only the shareholders pay income tax on the corporation’s net income. 3. Exclusive Owners’ Club S corporations have strict rules about who can be shareholders: no C corporations, LLCs, or LLPs; no trusts (with a few exceptions); no non-US residents. S corporations may have a maximum of 100 shareholders. Even if you’re not planning to have these types of owners, the S corporation owner restrictions can limit (or make more costly) future opportunities to sell stock to new investors or take advantage of common estate planning techniques. 4. Charge! It is possible for creditors of a corporation’s shareholder to take the corporate stock in satisfaction of their debts. Generally, the same is not possible for interests in LLCs or LLPs. Creditors of an LLC member or LLP partner are limited to a charging order, which means that creditors can receive distributions from the LLC or LLP, but they do not get control. 5. Head of the Class For C corporations, LLCs, and LLPs, it is possible to create different classes of stock or interest that entitle the owners to different rights. For instance, classes can differ on distributions, participation in management, and liquidation rights. S corporations cannot have different classes of stock, other than voting and non-voting stock. 6. All Good Things Every partner in a partnership (whether LLP or general partnership) has the right to withdraw from the partnership at any time. It may be a breach of the partnership agreement, but a partner’s withdrawal might still result in the dissolution of the partnership. Corporation shareholders and LLCs members do not have the right to withdraw unless this right is provided in an owners’ agreement. 7. Gainful Employment Profit distributions from an S corporation are not subject to employment taxes, provided owners who work in the business are also paid a reasonable (taxable) wage. Profit distributions to the working owners of an LLC or an LLP are subject to employment taxes, whether or not the owners also receive wages. 8. Healthy, Wealthy and Wise Payments for health insurance and other fringe benefits are generally deductible by a C corporation, regardless of the recipients. Health insurance and fringe benefits provided to the owners of an S corporation, LLC, or LLP are not deductible generally. 9. Keep it Simple A separate income tax return must be filed for each separate business (except a sole proprietorship or 100% subsidiary), even though S corporations, LLCs, and LLPs generally do not pay taxes themselves. The corporate income tax returns are relatively simpler than the LLC and LLP income tax returns because LLCs and LLPs are governed by complicated rules about the allocation of profits and losses. 10. Changing Course If circumstances require a change in the choice of entity, it’s almost always possible, at a price. The laws in most states now have simple filing procedures for converting from one type of entity to another. That’s the easy part. But conversion might trigger taxes, especially when converting from a corporation to another entity. No matter what business entity you choose, it’s a good idea to consult with an attorney. You can contact us online or by calling 407-660-2964.
Maitland, Fla., August 28, 2017－BrewerLong announces their renewed focus and commitment to being one of Central Florida’s best business law firms, meeting the needs of business owners and executives as they start, run, grow, and ultimately sell their businesses. “Our firm has been in business for almost ten years, and we have come to realize our unique strengths and values,” said founding partner and attorney Trevor Brewer. “Our clients look to us as problem solvers who alleviate their business headaches. Our extensive network of independent service providers allows us to partner with other industry experts when our clients need more than just a business attorney. We utilize a holistic team approach so we can provide the right solution to solve our clients’ problems.” This renewed focus allows BrewerLong to partner with business owners and executives through every step of the business life-cycle. By focusing on the various seasons of a business – birth, growth, maturity, and sale – BrewerLong delivers exceptional legal services for these clients. BrewerLong will continue to embrace its distinct role as a connector and influencer in the Central Florida business community. The firm is well known for its involvement in various associations, chambers, and nonprofits, and has a longstanding commitment to hosting their own professional alliance groups and educational workshops. This dedication to building relationships and connecting professionals is vital to BrewerLong’s proven ability to provide an exemplary client experience. Because of BrewerLong’s renewed focus on serving businesses, estate planning will no longer be a focal point for the firm. Estate planning attorney, Shannon R. Campbell, has left the firm to continue her legal practice as a sole practitioner, meeting the needs of individuals and families in the areas of estate planning, probate and elder law. “We have greatly enjoyed our time practicing with Shannon,” said Trevor Brewer. “She will continue to be a valued member of our extended professional network and we wish her success in her practice.”
Buying a business is a great way to hit the ground running as a business owner. Understanding these ten issues will help reduce your risk and maximize your profits when you buy a company. 1. The Next Right Step After agreeing in principle to buy the business (through a Letter of Intent, Term Sheet, or handshake), the buyer and seller must decide on what comes next. The seller might favor negotiating and signing the purchase agreement, followed by a period of due diligence investigation, followed by a closing. The buyer would probably prefer to take care of the due diligence first, and then “sign and close.” 2. What are You Buying? Stock or assets? The seller will probably want to sell the stock (or other company ownership interests) of the target company, but this exposes buyer to greater risk from liabilities arising prior to the sale. The buyer might prefer to buy all the business assets, but valuable contracts and rights belonging to the company might be subject to transfer restrictions, making an asset purchase difficult. 3. Says Who? It is important to know, as early as possible, whose approval is required for the transaction. Certainly, the stock (or other equity) owners of both buyer and target company, but what about option holders? What about the target company’s lenders, landlord, or other contract parties? What about government agencies? 4. Kick the Tires The most important step in the purchase process is a thorough due diligence investigation of the target company. Insist that the seller answer all of your questions and let you review every contract, record, and detail about the target company. The purchase agreement should make the seller liable for misleading the buyer, but it’s easier to do the due diligence up front than to rely on seller’s contractual obligation. 5. On the Hook The purchase agreement should include detailed representations and warranties from the seller that the target company is clean, except for “warts” that are specifically identified and acceptably dealt with. The purchase agreement should also explicitly provide that the seller will indemnify the buyer for any losses or costs resulting from an undisclosed “wart.” 6. Get Back. Representations, warranties, and indemnification are a must, but they only give the buyer the opportunity to sue seller over any breach of the purchase agreement or liability not assumed by the buyer. Lawsuits are never much fun, and the results can be surprising. A safer means of protection is to hold back payment of part of the purchase money (or put it in escrow) until the indemnification period is over. 7. Taxes for All You know that seller will pay capital gains taxes on the sale of the stock or business assets, but the buyer might be liable for taxes as well. Purchase of certain business assets (especially vehicles) might give rise to sales taxes. Purchase of real estate will require documentary stamp taxes, and payment with a promissory note may trigger intangibles taxes. Who pays these taxes should be negotiated. 8. Thanks, Internal Revenue Code An election under IRC Section 338(h)(10) allows the buyer to purchase corporate stock but the seller to effectively sell the business assets. This takes the tax sting out of a stock purchase by allowing the buyer to allocate the purchase price to the basis of the business assets. 9. Stay or Go Should the seller be required to continue working in the business after the transaction? Don’t expect sellers to work as hard for the buyer as they did when it was their company. On the other hand, the seller has valuable information about running the business. 10. This Ain’t a House Beware a purchase contract that is no more than a broker’s form real estate contract with “Business” written at the end. These contracts don’t protect buyers at all. In fact, they mostly just protect the broker. You need a real purchase agreement (and a real business attorney). Contact us today online or by calling 407-660-2964.
Thinking about the future of your business as an entrepreneur can be mentally tiring. It can be anxiety-inducing to picture a day when you might not be running your business. Not only that, the day-to-day of your business operations may be consuming all your time. Unfortunately, estate planning for your business isn’t something you can ignore. If you’ve worked hard to create and grow your business, the only way to make sure it is taken care of after you’re gone is to think critically about the business’ future. Luckily, there are ways to make this process easier. Handling each piece of your estate planning step-by-step will make it manageable. Here, we’ll go over ten essential estate planning tips for you as a business owner. 10 Essential Estate Planning Tips For Business Owners Finalize your decisions about the business’ future. Organize and update your records. Speak to all parties who will be impacted by your choices. Get your life and disability insurance in order. Decide whether you need a Buy-Sell Agreement. Assess the tax situation for your business. Create a will. Set up an estate plan. Draft a succession plan. Plan for updates to all your documents. 1. Finalize your decisions about the business’ future. Before you can do any drafting on your estate planning documents, you should take the time to think about your decisions. You’ll have many questions to answer, such as: Who should inherit the business? What if your first choice doesn’t want to continue the business? Are your kids interested in inheriting the family business? Do you need to set up a trust? Where can you find reputable attorneys and financial advisors if you don’t have a team already? How will the business transition after you aren’t at the helm anymore? These questions may not be easy. But they need answers so you can begin setting up your comprehensive estate plan. 2. Organize and update your records. If you are the only person that knows where your business records are, the people who take over will have a hard time. Take some time to locate and organize your business files. If you don’t have an easy filing system, fix that now. Some of the important records for you to maintain and arrange for your successors are as follows: Your business plan State-filed documents, such as Articles of Organization or Incorporation Your Operating Agreement, if any Financial records and statements Tax returns Insurance policies 3. Speak to all parties who will be impacted by your choices. Plan time to have conversations with all parties involved in your estate plan. Although many people first draft the documents and then tell the affected parties, it’s better to do it the other way around when a business is involved. At this stage, you’ll get an understanding of who may not want to take on the roles you had envisioned for them. You’ll also find out if there are any parties you missed who would be willing to handle more responsibility. Beyond that, you’ll be able to clue your family into your wishes, which is an integral part of all estate planning. 4. Get your life and disability insurance in order. As a business owner, you’ll need to think about how to provide for both your family and your business when you’re gone. Life insurance is a good idea for anyone planning their estate. For business owners, it becomes even more critical, because it could lead to a significant financial payout when your family needs it most. You should also consider purchasing disability insurance, as it can help if an unexpected disability comes up. Apart from purchasing general life and disability insurance and naming your family as beneficiary, you’ll also want to purchase a different type of life and disability insurance policy for your business. This is called a “key person” policy. With a key person policy, you can name your business as the beneficiary. These policies provide payouts when a “key person” in the company passes away or experiences a disability. This money could be very valuable for your small business. 5. Decide whether you need a Buy-Sell Agreement. If your business has multiple owners, you may need a Buy-Sell Agreement. A Buy-Sell Agreement is a document through which the owners of a business come together and decide what happens in case one of them can no longer participate in the company. Generally, the current owners have a right of first refusal on purchasing any ownership interest that has become available. A Buy-Sell Agreement can be very complicated, however, so it’s a good idea to get an attorney’s help. 6. Assess the tax situation for your business. At this stage, you should sit down with an accountant and tax attorney to discuss how you can best insulate your family and your business from an unreasonable tax burden. The right team can help set up your estate so that inheritance and estate taxes are minimized. You may also wish to discuss any long-term savings accounts or special investments you have. These will also have to flow to your family quickly and efficiently when needed. 7. Create a will. Now, this stage is where the heavy lifting of estate planning begins. After you’ve made your decisions, it’s time to draft your will. A will memorializes the decisions you’ve made for your estate. Without a will, your property would be passed down based on the laws of your state. Not only that, but without a will, your property can get tied up in probate for months on end (if not years!). A will isn’t a document that you should handle alone. An experienced estate planning attorney can make sure everything is as you want it to be, as well as counsel you along the way. 8. Set up an estate plan. Drafting a will is only part of planning for your estate. You must also have a Power of Attorney and a Healthcare Directive. A Power of Attorney gives another party the right to…