For many people, owning a small business is a dream come true. If you are one of those people, and you have made the decisions to make that dream come true, you have several important decisions ahead of you. One of the most important of those decisions is what legal structure to choose for your business. The type of legal entity you choose for your business will have a direct impact on things such as your personal liability, the management structure of the business, taxes, and estate planning. One popular choice for a small business is a Limited Liability Company, or LLC. The business succession planning attorneys at Morris Hall PLLC explain how an LLC works and how it might fit into your business succession plan.
Business Entity Options
Traditionally, a business had three types of legal entities from which to choose – a sole proprietorship, partnership, or corporation. A sole proprietorship is the default structure when a single individual is operating a business and has done nothing to form any other type of entity. A partnership exists when two or more people operate a business and share in the profits of that business. You are not required to execute any legal documents to form a partnership; however, many partnerships do operate under a Partnership Agreement. Finally, a corporation requires the owners to file Articles of Incorporation and several other legal documents. A corporation is run by a Board of Directors and the “owners” are the shareholders. From these basic three structure, several sub-categories and hybrids have evolved. One of those is the Limited Liability Company, or LLC, option.
An LLC is a type of hybrid business entity that combines the pass-through taxations of a sole proprietorship or partnership with the protection from liability offered by a corporation. Although an LLC is not a corporation, is does require the completion of legal documents to form. Because the laws that govern LLCs are state-specific, the requirements for formation of an LLC may differ slightly from one state to the next. The same is true for the laws that govern LLCs – they can differ by state. While an LLC shares the protection from liability with corporations, an LLC is much less formal. Whereas a corporation has very specific requirements regarding what documents must be prepared and filed each year to keep the corporation going, an LLC does not. The flexibility of an LLC makes it very popular with single owner businesses or with partnerships that do not have any immediate plans to expand.
Business Succession Planning
The type of entity you choose for your business also impacts your overall estate plan. Anyone who owns a business should include a business succession planning component in their estate plan. Doing so protects your investment in the business should you become incapacitated or die. It also ensures that your loved ones will receive the full value of your interest in the business if something happens to you. If you choose an LLC for your business, you may also be able to pass down the business to future generations by making them members of the LLC. If you do not wish to pass down the business, you may decide to enter into a Buy-Sell agreement to ensure that your surviving loved ones receive a fair price for the business after you are gone. Because the type of legal entity to choose for your business will impact your estate plan, be sure to consult with an experienced business succession attorney before formally creating your business.
Contact Our Business Succession Planning Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about business succession planning, contact our experienced business succession planning attorneys at Morris Hall PLLC by calling 888-222-1328 to schedule your appointment today.
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