Monthly Archives: December 2015
Business Entity Formation
Business entities can take many different forms – sole proprietorships, partnerships, limited liability companies (LLC), and corporations are the most common ones. Although they are simple and have the most flexibility and least regulation, sole proprietorships and partnerships fail to protect the company’s assets and the owners’ assets, and they fail to take advantage of many of the tax advantages of other types of entities. Additionally, entities such as LLC’s and corporations tend to present a more professional image and allow for greater future growth.
There are a few different types of corporations: non-profit corporations, C corporations, and S corporations. Non-profit corporations must qualify as such under the restrictions of Federal law as stated in the Internal Revenue Code, one of the most important of which is that they must be formed for a charitable purpose as defined there. When incorporating a for-profit company, the default form is a C corporation. Companies must elect to be treated as an S (small business) corporation by the IRS, should they wish to do so, and if they meet certain criteria, such as having no more than 100 shareholders, not having shareholders that are partnerships, corporations or non-resident aliens, and having only one class of stock. C corporations are taxed on their profits, and the shareholders are taxed on the dividends they earn (if declared and distributed), which can result in “double taxation.” S corporations have their income or loss pass through to the shareholders, who report that on their personal tax returns and pay tax at their individual income tax rates.
LLCs are similar to corporations in that they provide a shield to personal liability, and they also enjoy the benefits of pass through taxation. Some have even argued that they provide an even better shield to personal liability than corporations. Additionally, when compared to S corporations, LLCs have fewer restrictions relating to the number and types of owners, and in Texas and many other states, there are less administrative requirements. Also, the form and structure of LLC management is more flexible when compared to corporations.
Comparisons and Considerations
Corporations and LLCs create a legal “person,” (separate entity with rights like a person) that insulate owners’ legal liability for the debts and actions of the company. In Texas, and in most other states, both corporations and LLCs can be owned and managed by just one person. Importantly, however, in order to ensure the limitation of personal liability, all must follow certain financial, accounting, recordkeeping and operational formalities.
It is always important to consider the costs and benefits, advantages and disadvantages from legal and tax/accounting perspectives. Thus you should talk with your attorney AND your accountant to discuss your unique situation, possible future scenarios, and other considerations before rushing into formation without proper advice.
New Year Special!!! Discounted Pricing for Business Formation
From now until January 31, 2016, I will offer anyone who mentions this blog post a special price for my legal services related to forming a business entity. During that time, I will take 25% ($300) off the normal price of forming a corporation or LLC, making the price only $900, plus the filing fee owed to the Texas Secretary of State. Included for this price is the drafting and filing of the Certificate of Formation, as well as the drafting of bylaws (corporation), company agreement (LLC), organizational minutes, and templates for future years annual minutes. Additionally, we include a company records binder, company seal, and pre-printed stock (corp) or membership (LLC) certificates. If you prefer a different entity, I am also offering special pricing on partnerships (general, limited, and LLP). I look forward to hearing from you!
May you have very happy holidays and a healthy and prosperous new year!
We feel that having a will, and related powers of attorney and advanced directives, is one of the most important tasks one should complete, and at this time of year, being around family and making new year’s resolutions, people are often thinking of getting this done soon. So we’ve decide to repost this article.
After working hard your entire life to provide for your family, you should not allow the Texas Probate Code and the courts to decide how your assets are distributed. This newsletter points out the various problems of dying without a will and how these consequences are eliminated with a properly drafted will that disposes of your assets in accordance with your wishes.
Name Your Own Beneficiaries
When you die without a will, you are considered to die intestate and your property will pass in accordance with the descent and distribution provisions of the Texas Probate Code. Sometimes these individuals are the same you would provide for under your will, but not always. When you die with a will, the beneficiaries named under your will inherit your property exactly as you specify.
Reduce the Cost and Time of Probate
If you die without a will, the cost to probate your estate is substantially higher because of additional requirements, such as filing a determination of heirship with the court to decide the rightful heirs of your estate. This procedure is not necessary when the beneficiaries of your estate are named in your will. In addition to the increased expense, the probate process is substantially more time consuming if a dependent administration is required in which the court has to approve every action taken by the administrator. On the other hand, an independent executor named in your will administers your estate with minimal court supervision. This allows the probate process to be completed in a timely and cost effective manner.
Name Your Own Executors
If you die without a will, the court will appoint an administrator of your estate based on the order specified in the Texas Probate Code. If you die with a will, the court will appoint the executor(s) named in your will before considering any other individuals.
Extend the Time in Which Beneficiaries Receive the Bulk of Your Estate
If you have minor children and you die without a will, your children will receive their share of your estate when they reach 18 years of age. With a properly drafted will, a contingent trust can hold your children’s share until they turn an age that is more appropriate for them to receive the bulk of your estate. The trustee named in your will manages the children’s inheritance until they turn an appropriate age. The trustee may make distributions to your children during the life of the trust for their health, education, maintenance and support. While the use of a contingent trust is most common when minor children are involved, they work just as well for any individual under a certain age or otherwise incapacitated. Any beneficiary designations for your life insurance policies or retirement plans should also be coordinated with your will to make sure they are distributed to the children’s trust if they are under a certain age.
Eliminate or Reduce Any Estate Tax
Under current law, if your gross estate, including life insurance and retirement, is under $5.45 million, your estate will typically pass tax-free to your beneficiaries (and a married couple typically can pass up to $10.9 million of their wealth estate tax free). However, if your gross estate exceeds that number, you should contact an estate planning attorney to learn about estate planning options that can eliminate or substantially reduce any estate tax which would otherwise be payable to the Internal Revenue Service. With a federal estate tax rate as high as 40%, this issue should not be ignored.
Don’t wait…. Do it now…. Make it your New Year’s Resolution this year
While most people realize they should have a will, they still tend to procrastinate over having it done. Most attorneys can have a will prepared within days of the initial meeting, which will alleviate the many problems your loved ones will face if the time is not taken to get your affairs in order.