Business Planning and Transactions
Business Set-Up, Transactions and Exit Strategies
When someone establishes a business, they tend to of it as their own child and they work to see it grow. Chris has extensive experience in working with people throughout the life-cycle of their business, from formation to sale or termination. If you have a business, meet with Chris to see how he can help you.
When a person sets up a business, they need to think about what form it should take for a wide variety of reasons, whether it be for liability concerns, flexibility or liability concerns. If you want to start a business, we can assist you in determining whether a sole proprietorship, partnership, limited liability company or corporation is the best entity for you.
A sole proprietorship is a one-person enterprise and is the basic level of business ownership. The only indication to others that you have a business is a business name. All of the assets are owned in the name of the owner so all of the potential liability is attached to the individual owner. A sole proprietorship, on its own, does not provide any liability protection so a sole proprietorship is not recommended as a legal business structure.
A partnership is basically the same as a sole proprietorship but has more than one owner. A partnership does not provide any liability protection for its owners on its own so it is also not recommended as a legal business structure.
Limited Liability Company
A limited liability company (“LLC”) is the most flexible legal liability entity to form for a small business. If only one person (or a married couple in Washington) owns a LLC, the LLC is regarded as a “disregarded entity” for Federal income tax purposes, meaning that the owner(s) does not need to file a separate income tax return for income generated from the LLC; in essence, everything is still reported on the owner’s individual tax return (Form 1040). For LLCs with multiple owners (or “members”), all of the income, deductions, profits and losses of the LLC are not taxed at the LLC level but “pass-through” to the owners resulting in only one level of tax.
However, LLCs may not be the best legal entity for a business depending on the amount of income generated by the LLC and the potential risk for liability exposure of the business. Schedule an appointment with us to determine whether a LLC is the right entity for your business.
A corporation is not as flexible as a legal liability entity compared to a LLC but it may provide greater liability protection and more tax advantages. While a corporation is a state-created legal entity, the IRS has 2 different tax classifications for corporations: Subchapter S corporations for small businesses and Subchapter C corporations for corporations with more than 100 shareholders. A subchapter S corporation is for the most part treated like an LLC with no entity-level tax treatment – everything passes through to the shareholders. A subchapter S corporation is taxed both at the corporation level and at the shareholder level (through dividends).
While a corporation may not be the best legal entity for every business, it may be one to consider for your business. Contact our firm to see if a corporation is right for you and your business.
Sometimes a business entity needs to be fixed or changed. One of our favorite sayings is that “the State of Washington (or Oregon) is not in the business of providing legal advice. They’re only there to take your money and give you a sheet of paper telling you that your business is what it is.” That doesn’t mean that the form of the business is correct or that the entity is not getting the most liability protection available under the law. If you have set up the entity on your own or have concerns that the structure of your business is not appropriate for liability or tax considerations, see Chris to discuss whether the entity needs to be fixed and made better and stronger.
Once the business is formed, it needs to interact with other people or businesses – that’s the definition of “Business.” Chris has worked with many clients, both large and small, to ensure that the deals they are entering are fair and that they serve their purpose, whether the matter involve a lease or employment agreement or a complex transaction such as a purchase and sale of a business. If you have an issue involving your company and another entity that you have questions or concerns, meet with us to find a solution that will work for you and your business.
As the saying goes, “nothing lasts forever.” Eventually something will happen that will cause the business to change, whether voluntarily, such as a sale or other transfer to an outside party or to members of the family through succession planning, or involuntarily, either due to death, disability or a bad decision or economy. In any event, various considerations come into play including the manner in which the transfer is made and the tax aspects of such transfer. Our firm has successfully handled these matters for our clients so if you are faced with an upcoming transfer, please see us to review all of the known and unknown issues that may arise and how best to make the transition smoother.