Business & Real Estate Planning
Collaborative Business Formation and Succession Planning
Many of our clients’ net worth and cash flow is or will be derived from a closely held or family business. Whether a business is at the formation, growth or exit stage, our collaborative planning services can help business owners tackle transitions gracefully.
The formation of a closely held business requires careful selection of the type of entity to be used. Deciding which form of entity will work best can be challenging, since it requires a solid understanding of the liability protection offered by each type and the tax consequences for the entity and its owners. The limited liability company has become the preferred vehicle for many operating and high liability businesses. This type of entity provides increased liability protection while offering flow-through taxation. The limited liability company requires few business formalities while providing increased flexibility in day-to-day management and transferability upon an owner’s retirement or death. Where appropriate, formation of the entity in an asset protection state can provide added strength and safeguards. Other types of entities that are often used include partnerships (limited or general) and corporations (C or Subchapter S).
For ongoing businesses, the transition of key players, whether due to incapacity, death, or retirement, can be a devastating event for the business and those who depend on it. Who will run the business? Who will own it? How will cash flow be replaced?
Most business owners are entirely devoted to running the business and fail to plan for the future. As a result, many closely held businesses cannot be sustained after the retirement or death of the founder or key employee. Most issues raised by these transitions can be addressed through proper planning. Buy-sell agreements can be implemented to determine the timing, price and source of funding to purchase a disabled, retiring or deceased owner’s interest. If the business is to be sold, planning for its sale in advance can optimize its value. If the business is to be passed down, estate, gift, generation skipping transfer tax minimization strategies can be put in place to avoid a fire sale of the business to pay taxes. Often times, some, but not all, of a business owner’s children or relatives are involved and want to remain involved with the business, and treating children or relatives fairly can be a sensitive matter.
Through our collaborative planning process, we work with clients, their other advisors and our contacts in asset protection states to implement holistic plans designed to form, grow, replace cash flow and provide for the succession of ownership and control of a closely held business. These plans greatly increase the likelihood that the business will continue to thrive after one of life’s transitions, all while lessening income and transfer taxes and maintaining harmony.
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