Whether you’re just starting your own business or planning to transfer a successful company to your children, it is important to get expert legal advice to help you make the best decisions for your business.
Business Start Up
When starting up your own company, choosing the right entity can protect your assets and minimize your taxes for years to come. Whether a limited liability company, an S Corporation, or other business entity is the right choice for your business requires a careful analysis of numerous variables, including the number and identity of the initial owners, the size and type of the operation, and the value and type of assets owned by the enterprise. Putting the right plan into place at the start can result in untold tax savings and protection from creditors.
Effective tax and asset protection planning requires not just the right entity, but adherence to proper protocols and record-keeping practices. If business assets are mixed with personal assets or books and records are not properly kept, the best-laid plan can be rendered ineffective. Furthermore, poorly kept records may cost you dearly if you decide to sell the company at some point in the future. No buyer wants to inherit a mess that they may later have to explain to the tax authorities. Consulting with your accountant and attorney on a regular basis should ensure that the structures you have in place continue to work as planned.
Exit from the Business
Whether you’re selling your company to a third party or one of your business partners, or transferring it to your children, a successful transition requires a trusted legal advisor to help you navigate the complex issues involved.
Sale to a Business Partner
In a closely-held business, it is important to plan for what would happen if one of the owners were unable to continue in his or her role due to death or disability or simply desired to retire or otherwise leave the business. Advanced planning involving buy-sell agreements and life insurance policies can ensure that the business continues to operate under the remaining owners while providing a fair return for the departing owner or the owner’s family.
Family Business Succession
The transfer of a business from its founder to a subsequent generation is a critical point in the life cycle of a family business, and a successful transition requires a team of trusted professionals. Family business succession planning should incorporate not only legal and tax planning, but your vision for the future of the company and the legacy you leave for your loved ones. Business succession planning often involves difficult decisions about whether children are the best choice to lead the business, and if so, which one(s). Some children may be involved in the day-to-day operations of the business, while others have little or nothing to do with it. In the absence of any plan, the business will be transferred to all your children equally – whether or not it is something they want. Allowing a company to be passed to children who have no interest in running it is a sure recipe for disaster. It is important to create a plan that ensures the continued success of the business while providing for children who may have chosen other career paths.
Estate and gift taxes create an additional challenge for the owner of a family business. Because the owner’s assets are often tied up in the business, an estate tax levy can require a sale of all or part of the company to pay the IRS. Careful planning is required to both minimize any estate taxes and ensure that there are sufficient assets available to pay any taxes owed without affecting the next generation’s ownership of the company.
Many strategies are available for transferring a family business to the next generation while minimizing taxes, including family limited partnerships, grantor retained annuity trusts, and other sophisticated planning techniques.