Business Entities

Asset Law Firm, PLLC can prepare the documents needed and help you form a business entity to suit your needs. A limited liability company or “LLC” has become the most popular type of business entity in the past few years, beating out the long standing reign that a corporation once held. An LLC combines the limited liability of a corporation and the tax flexibility of a partnership. An LLC has fewer corporate formalities since it is generally not required by law to do annual minutes or document major changes in the corporation. An LLC’s manager may be a business entity or trust. This can be useful in some states when trying to create anonymity and/or asset protection. A corporation is a legal entity that is filed with the state and conducted separate from its shareholders. It is the more formal business structure of the two when compared to an LLC, requiring annual minutes of shareholders’ and directors’ meetings. One of the advantages of a corporation over an LLC are the employee tax benefits. Unlike a limited liability company, only salaries taken by shareholders will be subject to self-employment taxes.

Person Filling Out Contract

Corporations

A corporation is a legal entity that is filed with the state and conducted separate from its shareholders. It is the more formal business structure of the two when compared to an LLC, requiring annual minutes of shareholders’ and directors’ meetings.

A corporation provides limited liability protection to its shareholders so long as all formalities are maintained. Extenuating circumstances which could expose a shareholder to personal liability may include co-mingling of personal assets with company assets, fraud or an intentional tort.

When the company is formed, it will need to elect its tax status as a “c” corporation or an “s” corporation. The company will be taxed by default as a c-corporation, which results in the corporation paying taxes on its profits, and again when the shareholders pay taxes on their dividends from the company. A company which elects to be taxed as an s-corporation will not be taxed at the corporate level, but the shareholders will be taxed for their profits from the company which will flow through to each shareholder’s personal tax return.

One of the advantages of a corporation over an LLC are the employee tax benefits. Unlike a limited liability company, only salaries taken by shareholders will be subject to self-employment taxes (social security and medicare). Any dividends distributed to the shareholders of an s-corporation will be taxed at each shareholder’s personal tax rate.

A shareholder of an s-corporation must be in individual who is a U.S. citizen or resident of the U.S. A maximum of 100 shareholders is required in order to qualify as an s-corporation.

Finally, as a corporation, it may be a simpler task for the company to obtain credit separate from its shareholders and allow the business to have greater borrowing power as a stand alone company.

Documents:
Articles of Incorporation
Organizational Minutes of Board of Directors
Bylaws
Election by a Small Business Corporation

Limited Liability Company (LLC)

A limited liability company or “LLC” has become the most popular type of business entity in the past few years, beating out the long standing reign that a corporation once held. An LLC combines the limited liability of a corporation and the tax flexibility of a partnership. An LLC can limit a member’s liability to the assets of the LLC, rather than the assets of the individual members of the LLC. In other words, if you are doing business as a sole proprietor and you get sued by a creditor, your home, car, bank accounts and stocks would be exposed to the liability owed to the creditor. There are some occasions when an LLC may not protect you from personal liability. This can be when negligence is involved, co-mingling of personal and company funds, or when you have personally guaranteed a loan.

A citizen from another country can be a member of an LLC with little inconvenience, whereas, a shareholder of a corporation must be a resident or citizen of the United States. Additionally, an LLC has fewer corporate formalities since it is generally not required by law to do annual minutes or document major changes in the corporation. A corporation has directors and officers of the company who must be individuals and may not be a business entity or a trust. An LLC’s manager may be a business entity or trust. This can be useful in some states when trying to create anonymity and/or asset protection.

An LLC may be taxed as a sole proprietor (disregarded entity) if a single member entity, a partnership or as a corporation. If the entity is taxed as a partnership, each member’s profits and losses flow through to the members’ individual tax returns, therefore a separate tax return is not necessary for an LLC taxed as a disregarded entity or a partnership.

Even if you are doing business on your own, your business will be regarded as having more credibility as an LLC than that of a sole proprietorship. A formal business entity will demonstrate your commitment to the business and to those with whom you do business.

Documents:
Articles of Organization
Operating Agreement
Employer Identification Number
Publish Approved Articles of Organization

Asset Protection for Real Property

As a property owner, it is important to protect yourself and your property against liability from creditors and lawsuits. Asset protection is accomplished by transferring your property into entities like LLCs, Limited Partnerships, and others.

Asset protection seeks to limit liability and protect equity. It is important for property owners to plan ahead and limit their potential personal responsibility stemming from property liability. They must also take care to protect the equity in their properties that might be targeted by litigants and/or creditors. The head-in-the sand approach of hoping that no litigants or creditors will come calling is not prudent or wise. It is best to take a proactive attitude and prepare yourself and your assets as best you can.

A property owner can be sued for premises liability by someone who gets injured or suffers other damages on the property. Possible plaintiffs against the property owner include guests, contractors working on the property, tenants, guests of tenants, and the list goes on and on.

Remember that there is no such thing as being “lawsuit proof.” Anyone can sue anyone, and no amount of asset protection will act as a shield to litigation. Instead, a prudent property owner will take steps to protect assets and prepare defensive strategies that can be employed if necessary.