If you are a business owner or have a dream to be and are:
We have over 40 years experience and can start working with you today to get things moving. Our business clients include doctors, treatment and test facilities, manufacturers, lawyers, engineers, real estate companies, oil service companies, restaurants and a variety of other enterprises, at first with forming, converting or registering the type of company best suited for them.
After formation and setting up the business structure we tend to their general business law needs, , we help to launch them to get up and running with their important core contracts, real estate transactions and getting their important deals closed.
Most business people aware of the basic traditional business structures being sole proprietorships, partnerships and corporations. The problem with these is that the law of corporations goes back 500 years. The first ships that brought settlers to the New World from Europe sailed under corporate charter, a European invention like a mini-government.
Claimants have had a long time, hundreds of years, to lean how to “pierce corporate veil” or sue the owners personally and to establish corporate director and officer liability. Corporations, sole proprietorships and general partnerships, offer virtually no personal protection. The typical entity we have known for hundreds of years carries with it laws that can impose significant liability for the owner and operators of the company.
When you own or operate a business or manage assets you have to be on top of everything. But competition, market conditions, the economy, taxes, and law changes are constantly throwing new challenges at you everyday.
Makris Law Firm Business Law Reviews
Do you have a business structure that is suitable for the type of product or service that you offer and the risks involved?
The most ignored part of the business to help you weather these challenges is your choice of business structure. Over the years we found that most people whether we were representing them or against them had no clue as to why they were holding assets in a certain manner and never asked themselves a simple question – What is the best structure to operate the business or hold assets the enterprise requires to do business? To get to that spot we have to ask:
Do you have a strategy for limiting your liability and protecting your hard earned assets?
Anyone who has amassed wealth has worked very hard at what they do, learning and honing our business and professional skills, then putting in long hours, paying taxes and hoping that nothing else happens that would rob us of assets that sometimes takes years to amass. Among good times and bad economic times, there is the competition, the cost and downtime of a family illness, confiscatory tax policies to name a few, and there are also the 5 D’s to worry about
Does the structure have inherent within it a plan to deal with the 5 D’s:
Assets – The Big Picture
But first, its first important for us to get clear about how we think about our assets. For most folks we think of them almost like planes circling an airport. We know what they are and where they are but what about grouping them by their function in our lives and whether they are protected from creditors and the 5 D’s. A clear way to do this is what I call the “Iron Quad”. There are four quadrant spaces that the shape of a cross creates and in each one of them we should be able to place one of 4 categories of assets.
The Iron Quad
The assets held in quadrants 1 and 2 held in Texas are exempt from creditors and third party claimants. The assets held in quadrant 3 should be only those assets which are required to be held by a business for use in the production and delivery of goods and services. Quadrant 4 are assets held for investment divided up in: 4(a) liquid assets that are clean or non-liability generating assets, and 4(b) being real estate investment which can generate landlord liability scenarios.
Since the assets in quadrants 3 and 4 are at risk, it is imperative that the right structure be chosen for the quadrant 3 business and the 4(a) and 4(b) investments assets which also should be operated like a business. But, what are the business structures we can choose from?
Business Entities – The Big Picture
Just like the Iron Quad helps us categorize our assets into protected and non-protected groupings, its useful to review the main common business forms we have all heard to compare and contrast in this non-exclusive list:
| Characteristic | Limited Liability Company | Partnership (General/Limited) | "S" Corporation | "C" Corporation |
|---|---|---|---|---|
| Liability | In most states all members have protection from the LLC’s debts | General partners liable, but limited partners have protection from partnership debts. | Shareholders not involved in management have protection | Shareholders not involved in management have protection |
| Management Participation | No restrictions | Participation by limited partners may be restricted by Partnership Agmt | No restrictions but may subject shareholder to liability | No restrictions but may subject shareholder to liability |
| Continuity of Life | In most states Yes | In most states Yes | Yes | Yes |
| Transferability Restricted | In LLC Agreement if desired. | In Partnership Agreement if desired | In By-Laws or Shareholders Agreement if desired | In By-Laws or Shareholders Agreement if desired |
| Ownership Classes | Multiple classes permitted | Multiple classes permitted | One. However, there can be differences in voting rights. | Multiple classes permitted. |
| Entity-level taxes | Members level for federal income tax | Partner level for federal income tax | Generally, only shareholder level. Some states tax S corporations. | Corporate and shareholder level. |
| Entity interest subject to creditor seizure | In most states No | In most states No | Yes | Yes |
| Tax Status as Flow-Through Entity | Yes depending on number of members domestic LLCs may elect to be classified either as a partnership or as an association (taxed as a corporation). | Yes domestic LPs may elect to be classified either as a partnership or as an association (taxed as a corporation). | Yes. However, to maintain cannot exceed maximum number of shareholders allowed by IRS Reg | No |
What's Trust Got to Do with It?
For protecting personal assets most people will immediately think “Trust”, but will not think about the following. A Trust is a tax paying entity. Income taxes are paid at a high rate on undistributed income. In many instances to be worth the paper they are written on a Trust must be irrevocable creating a rigid situation. In the meantime the conditions that the Trust was created for to start with could change making it an anachronism with little ability to adapt. Trusts can and should be used for strategic purposes to accomplish an objective that cannot be done through other means.
Limiting Liability
For years, other countries recognized the concept of limited liability for business and interest owners. However out of the West circa 1977, Wyoming was the first state to recognize the concept of Limited Liability Companies (LLC’s) which then spread to the rest of the U.S. in the 80’s and 90’s. After that variations of the same thing sprang up and now you may have seen business names with indications such as LP, LLP, PLLC, and others. At this time LLC’s have become the most common entity of choice for a business. The black letter LLC statute in most states recites words to the effect of: In a claim or suit against the company, thou shalt only sue the company and not the owners.
Victor Makris With Steve Forbes
Of Forbes Magazine
And a limited liability entity’s company or partnership agreement can contain provisions addressing remedies, work-arounds and procedures to plan for the five D’s in addition to providing the inherent protection that the entity itself provides.
Sam Walton in his autobiography Made in America, described how the Walton Family used the structure of the famility limited partnership to start Walton Enterprises, out of which grew Wal-Mart, and the ownership of real estate, area banks, and a newspaper also grew out of Walton Enterprises. He and his wife were the general partners and the children were the limited partners.
Change of Structure.
If a business owner or asset manager determines that for liability, tax or other reasons another structure would be more beneficial, most states provide a procedure called “business conversion”. This means that you can convert from C corporation to Limited Liability Company, C Corporation to Limited Partnership, Limited Liability Company to Limited Partnership, and any number of other combinations. The good news is that in most states the Tax EIN for reporting taxes remains the same, and contractual arrangements remain the same. For all intents and purposes it’s the exact same business the main distinction being that it was one type of entity and now its another type of entity i.e. Acme, LLC formerly Acme, Inc.
In just a short session you can get your top of mind questions answered, turn confusion into clarity, and establish a pathway towards organizing your business, its holdings, and your personal assets in a way that makes sense for the business and affords you optimum security in the long term.
