Are you interested in starting a small business, but all the legal jargon has you confused? You’re not alone in this issue. While there are a lot of acronyms to learn about – LLC, INC, C Corp, S Corp – understanding how to structure your business legally is important and must not be overlooked.

Because it is not difficult to start a business or a company, there are defaults already put into place. For example, if you start a business today, you will automatically be considered a sole proprietor. If you start a business with another individual, than you are in a partnership. These are the terms you will see on your IRS tax documents when filing your tax returns at the end of the year.

Many believe this form of reporting is good enough, however because it is so basic there are a couple of drawbacks small business owners do not realize. If you are in a business as a joint partnership, you are also liable for all the decisions your partner makes. If your partner makes a bad business deal, your company is in jeopardy, as well as all of your assets and properties. This is where strategic small business planning comes in.

If you are already running a small business, or are thinking of starting one up in the near future, you have to consider how it is set up in terms of its legal structure. That way, you are protected. Your best bet with regard to making these legal decisions is to sit down with an attorney to discuss all of your options, and glean an understanding of the entire picture. Many estate planning lawyers, as well as asset protection lawyers are skilled in the area of small business planning.

During this meeting with your attorney, you are going to discuss your overall business plan to include how to structure your business. You may think you have this all determined already and set into stone, but be aware your attorney will be able to advise you in areas where you may have inadvertently made some mistakes.

During this discussion, inquire about how the creation of this business (or the existence of an already established small business) will affect your estate planning. Do you need to leave provisions in your will? Should you set up a separate trust account? Should you appoint a bank as the trustee? These are all questions that play out in your overall small business planning, whether they seem like they do or not.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

If you are a small business owner, the Limited Liability Company, or LLC, is one among several forms of ownership available for you to choose from.  The LLC can be a viable option for both sole proprietorships and businesses with multiple owners, and it combines certain features of a partnership with certain features of a corporation into a business form that offers flexibility and protection to its owners.

An LLC is a little more formal than a partnership or a sole proprietorship in that it is formed by filing Articles of Organization with the Secretary of State.  The owners of an LLC are its “members” and not shareholders. And, unlike a corporation, an LLC has no bylaws. Instead, multiple member LLCs operate according to an Operating Agreement.

As long as the LLC is operated appropriately, its members are afforded limited personal liability for its debts and obligations, similar to the limited liability granted to corporate shareholders. Unlike a “C” corporation, however, the members of a Limited Liability Company enjoy pass-through taxation. This means that the LLC itself is not taxed; instead, the members themselves are taxed on earnings received from the organization. In short, this means no double taxation.

Although it offers flexibility and the benefit of pass-through taxation, there are some disadvantages that come with Limited Liability Company status. For instance, in many cases, members’ earnings are subject to self-employment tax.

The form of ownership you select for your business can have far-reaching ramifications. It’s important that you consult with an experienced advisor and understand all your options before making a selection.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

If you own a business and you want to see that business survive even after your death, you need a succession plan. And, if your business is co-owned, part of that succession plan should be a Buy-Sell Agreement.

What is a Buy-Sell Agreement?

A Buy-Sell Agreement is a contract that you and your co-owners enter into, while you’re all still alive and well – preferably when your business is established. The Agreement sets forth when an owner can sell his or her interest in the company, to whom the interest can be sold, and how much that interest would cost. Alternatively, the Agreement might set forth an agreed-upon formula or method for reaching a purchase price at the appropriate time.

Why Use a Buy-Sell Agreement?

Buy-Sell Agreements can cover a multitude of situations, like the divorce or bankruptcy of a co-owner, or just his or her desire to leave the company. But they’re especially useful when it comes to the death or disability of a co-owner. This is, by its nature, a stressful time for all parties involved. Having an Agreement in place that dictates how the deceased owner’s business interest will be handled, and at what price, can eliminate unnecessary strain and conflict.

What About Coming Up With the Money?

Aside from determining the price of an owner’s interest, one of the most important features of a Buy-Sell Agreement is the terms that control how that price is paid when the time comes for a deceased or disabled owner’s interest to be paid. Some business owners include flexible payment terms in their Agreements, so that the remaining owners won’t be left scrambling to come up with the necessary capital. Other business owners use life insurance policies to fund Buy-Sell Agreements.

Your estate planning attorney can help you establish an effective Buy-Sell Agreement as part of your company’s overall succession plan.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

When people consider buying a life insurance policy, they’re usually thinking of providing for their spouse and children in the event they pass away. But, if you’re a business owner, you need to know what life insurance can do for you. The first step is to envision what you’d like to have happen to your business if you passed away unexpectedly.

If Your Loved Ones Will Take Over

If you plan to pass your business on to family members, a life insurance policy can be essential in shoring up cash shortfalls during the transition. It can also provide your family members with much-needed liquidity for paying estate taxes or debts, so that there’s no threat of your business being sold to meet these obligations.

If The Business Will be Sold

If your plan is for your loved ones to sell your business after you pass away, life insurance might still be essential. For example, the same concerns about taxes and debt apply, so you’ll want to make sure there’s liquidity during the estate settlement process. Plus, your business likely won’t sell immediately, so there will need to be funds available to keep the business operating until the transition can be made. You’ll want your loved ones to be able to take their time and accept the best offer, instead of being rushed to take the first offer that comes along.

In addition to being properly insured, it’s essential that you have a well-thought-out succession plan in place. This will help to guide your loved ones and ease the transition in the event of your death. An estate planning attorney can help you assess your needs, and put together an effective succession plan.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.

If you’re like a lot of small business owners, it’s probably easy for you to get caught up in taking care of the day-to-day operations, and put off thoughts of what would happen to your business if you passed away. Yet, if you want your business to thrive even after you’re gone, it’s essential that you have a plan for how that will happen. So, where do you start?

The first, and maybe the most difficult step, is to decide who will take over for you when you retire or pass away. Especially if you have more than one child, this can be a touchy subject. Yet, having a plan for who will take over is the only way to ensure a smooth transition. The most important aspect of choosing your successor? Making sure he or she can do the job. As tough as it may be, you need to take an objective look at your children (or other relatives) and decide who is the most capable of filling your shoes and taking your business in the direction you want it to go. And don’t forget to make sure your successor is willing to take over for you.

Once you’ve crossed this hurdle, you will want to make sure that whomever is taking over has all the training and preparation he or she will need. This could mean providing the appropriate education or outside training, or it could mean on-the-job training. Whatever you do, make sure your successor knows the business inside-out before he or she has to take the reins.

Finally, make sure estate taxes don’t decimate the value of your business. This is where your estate planning attorney can help you. There’s a wide variety of tax planning strategies available – everything from the family limited partnership to a variety of trusts – to help keep your business in the family and make sure it retains its value.

Robert J. Kulas, P.A. Attorneys at Law is a member of the American Academy of Estate Planning Attorneys.