Protecting Your Limited Partnership
Michael Potter, J.D. asked:
The use of the Limited Partnership has grown in popularity over the last 25 years as both a way to limit liability and reduce exposure and risk as well as a tax and estate planning tool. Like any other business or investing tool, it can be used properly for its intended purpose or it can be misused, resulting in problems.
PRACTICAL LESSONS LEARNED
Though the Limited Partnership has been adopted in all states of the USA, not all limited partnership statutes are created equal. Some are much better than others, and some are worse. It’s important to be in compliance with state law requirements, remembering of course that some states have far more formality requirements than do others. Here are some useful suggestions.
As a preference, make use of those jurisdictions where the LP statute is not invasive of every partner’s privacy. Some states want each partner’s name and address, even if they are not the (managing) general partner. Other states are far more respectful of privacy and only require the contact information of the General Partner. Be sure to file any Annual Report. In the better jurisdictions, this is normally just a statement of who the general partner is, along with their address. In others, it is more detailed and requires a financial report. Use the Limited Partnership for its intended and proper purpose. It should have a ‘business purpose’, i.e. controlling and holding investment assets such as the stock of corporations, limited liability company ownership interests, investment trading accounts, mutual funds, etc. The Limited Partnership should not be treated as if it’s your personal piggy bank. Ensure that the Partnership Agreement states one or more specific and well-drafted business purposes. Have the Partnership Agreement drafted by a licensed attorney with experience in this area of the law. There are business entity filing providers (incorporators) who don’t know what they’re doing and they tend to provide a ‘generic’ agreement that is a gross disservice to their customers.
AVOIDING IRS PROBLEMS
A series of IRS cases (the Strangi cases) examined the misuse of Limited Partnerships, particularly as to their misuse claiming deep tax discounts where the founder of the Partnership basically treated the assets of the Partnership as his own despite claiming to transfer them to the FLP. To avoid IRS problems, here are some ‘lessons learned’ to consider:
Don’t set up an FLP primarily for tax reasons. That is not a legitimate ‘business purpose’. Doing so only asks for trouble. The IRS considers it abusive to put all of your personal assets into the Partnership. Keep a sufficient amount of funds and accounts outside the Partnership that will provide for your lifestyle. The cost of your estate administration should be paid for out of your Living Trust or personal financial accounts, not out of the Limited Partnership. The same goes for estate taxes. It might be prudent to have a life insurance policy sufficient to cover anticipated estate taxes. That should be held separate from your family’s Partnership. It’s very unwise to put your personal residence into the family’s Limited Partnership. It can easily be deemed to be abusive by the IRS. In the Strangi case the IRS was very critical of Mr. Strangi’s occupying the home without paying rent after the home had been transferred to the Limited Partnership. The same would obviously be true for other ‘personal use’ items such as boats, art collections and vacation homes.
ADMINISTERING THE LIMITED PARTNERSHIP
One of the areas where problems can arise is in the proper administration of the FLP. This includes not only the day-to-day operations, but also the funding of the Partnership. For example:
Change title on assets intended for ownership by the FLP. Failure to do so means that the asset is not actually included in the Partnership even though the Partnership Agreement may list the asset on its initial list of partnership property. Changing title means more than just including an item on a list. Trading accounts at a brokerage for example might require that you close the previous existing account and open a new one, in the name of the Limited Partnership. Real estate that you intend to transfer to the FLPwill need to be re-titled by means of a deed which conveys ownership and is recorded with the County Recorder where the property is located. If there is any confusion over which assets belong to the Limited Partnership itself and which belong to the individuals or entities that are the limited partners, such confusion needs to be clearly resolved with a paper trail that can be traced and audited. Avoid using assets belonging to the Limited Partnership for purposes other than those stated in the business purpose section of the Partnership Agreement. Keep accurate books and records, and have a paper trail that is clear and unmistakable. The books and records of the Limited Partnership should be kept in an orderly and efficient manner that reflects attention to detail and your intention of administering the Partnership in a fair and business-like manner. When distributions are made, they should be equitable and fair. Unless there is an agreement signed by the Partners to make unequal distributions favoring one partner more than the others, distributions should be allocated among the Partners on a pro-rate basis equal to their percentage of Partnership interests (i.e. their percentage of ownership). Funds that are retained inside the Partnership should be re-invested for the good of the Limited Partnership as a whole, not for the personal use as a piggy bank for one partner. Properly drafted Partnership Agreements should certain rights for limited partner - such as the power to replace the General Partner and Amendment rights as to the Partnership Agreement. The General Partner should be expected to make an Annual Limited Partnership Report. This is different from the annual filing required by the Secretary of State. This Annual Limited Partnership Report is from the General Partner to the Limited Partners and serves as a report card as to how the Partnership is doing financially with its holdings and investments. It should highlight any changes (positive or negative) and any upcoming business opportunities, as well to set forth a cash flow statement and balance sheet for every Partner to review. If a family’s Limited Partnership is created close in time to the death of the founder, and if the founder contributed the bulk of the Partnership’s assets at that time, this may lend itself to an attack by the IRS and would likely be successful. It is best to form a family’s Limited Partnership for a proper business purposes (i.e. managing investments, company stock, mutual funds, etc.) and to properly document the timely and proper administration of the Limited Partnership with accurate books and records.
It is important to ‘walk the walk’ and not just ‘talk the talk’. A Limited Partnership that is properly drafted, has a business purpose, is run in a business-like manner, and is established well before the death of the founder has a much better chance of withstanding any audit and proving to be an example of ‘how to do it right’.
The use of the Limited Partnership has grown in popularity over the last 25 years as both a way to limit liability and reduce exposure and risk as well as a tax and estate planning tool. Like any other business or investing tool, it can be used properly for its intended purpose or it can be misused, resulting in problems.
PRACTICAL LESSONS LEARNED
Though the Limited Partnership has been adopted in all states of the USA, not all limited partnership statutes are created equal. Some are much better than others, and some are worse. It’s important to be in compliance with state law requirements, remembering of course that some states have far more formality requirements than do others. Here are some useful suggestions.
As a preference, make use of those jurisdictions where the LP statute is not invasive of every partner’s privacy. Some states want each partner’s name and address, even if they are not the (managing) general partner. Other states are far more respectful of privacy and only require the contact information of the General Partner. Be sure to file any Annual Report. In the better jurisdictions, this is normally just a statement of who the general partner is, along with their address. In others, it is more detailed and requires a financial report. Use the Limited Partnership for its intended and proper purpose. It should have a ‘business purpose’, i.e. controlling and holding investment assets such as the stock of corporations, limited liability company ownership interests, investment trading accounts, mutual funds, etc. The Limited Partnership should not be treated as if it’s your personal piggy bank. Ensure that the Partnership Agreement states one or more specific and well-drafted business purposes. Have the Partnership Agreement drafted by a licensed attorney with experience in this area of the law. There are business entity filing providers (incorporators) who don’t know what they’re doing and they tend to provide a ‘generic’ agreement that is a gross disservice to their customers.
AVOIDING IRS PROBLEMS
A series of IRS cases (the Strangi cases) examined the misuse of Limited Partnerships, particularly as to their misuse claiming deep tax discounts where the founder of the Partnership basically treated the assets of the Partnership as his own despite claiming to transfer them to the FLP. To avoid IRS problems, here are some ‘lessons learned’ to consider:
Don’t set up an FLP primarily for tax reasons. That is not a legitimate ‘business purpose’. Doing so only asks for trouble. The IRS considers it abusive to put all of your personal assets into the Partnership. Keep a sufficient amount of funds and accounts outside the Partnership that will provide for your lifestyle. The cost of your estate administration should be paid for out of your Living Trust or personal financial accounts, not out of the Limited Partnership. The same goes for estate taxes. It might be prudent to have a life insurance policy sufficient to cover anticipated estate taxes. That should be held separate from your family’s Partnership. It’s very unwise to put your personal residence into the family’s Limited Partnership. It can easily be deemed to be abusive by the IRS. In the Strangi case the IRS was very critical of Mr. Strangi’s occupying the home without paying rent after the home had been transferred to the Limited Partnership. The same would obviously be true for other ‘personal use’ items such as boats, art collections and vacation homes.
ADMINISTERING THE LIMITED PARTNERSHIP
One of the areas where problems can arise is in the proper administration of the FLP. This includes not only the day-to-day operations, but also the funding of the Partnership. For example:
Change title on assets intended for ownership by the FLP. Failure to do so means that the asset is not actually included in the Partnership even though the Partnership Agreement may list the asset on its initial list of partnership property. Changing title means more than just including an item on a list. Trading accounts at a brokerage for example might require that you close the previous existing account and open a new one, in the name of the Limited Partnership. Real estate that you intend to transfer to the FLPwill need to be re-titled by means of a deed which conveys ownership and is recorded with the County Recorder where the property is located. If there is any confusion over which assets belong to the Limited Partnership itself and which belong to the individuals or entities that are the limited partners, such confusion needs to be clearly resolved with a paper trail that can be traced and audited. Avoid using assets belonging to the Limited Partnership for purposes other than those stated in the business purpose section of the Partnership Agreement. Keep accurate books and records, and have a paper trail that is clear and unmistakable. The books and records of the Limited Partnership should be kept in an orderly and efficient manner that reflects attention to detail and your intention of administering the Partnership in a fair and business-like manner. When distributions are made, they should be equitable and fair. Unless there is an agreement signed by the Partners to make unequal distributions favoring one partner more than the others, distributions should be allocated among the Partners on a pro-rate basis equal to their percentage of Partnership interests (i.e. their percentage of ownership). Funds that are retained inside the Partnership should be re-invested for the good of the Limited Partnership as a whole, not for the personal use as a piggy bank for one partner. Properly drafted Partnership Agreements should certain rights for limited partner - such as the power to replace the General Partner and Amendment rights as to the Partnership Agreement. The General Partner should be expected to make an Annual Limited Partnership Report. This is different from the annual filing required by the Secretary of State. This Annual Limited Partnership Report is from the General Partner to the Limited Partners and serves as a report card as to how the Partnership is doing financially with its holdings and investments. It should highlight any changes (positive or negative) and any upcoming business opportunities, as well to set forth a cash flow statement and balance sheet for every Partner to review. If a family’s Limited Partnership is created close in time to the death of the founder, and if the founder contributed the bulk of the Partnership’s assets at that time, this may lend itself to an attack by the IRS and would likely be successful. It is best to form a family’s Limited Partnership for a proper business purposes (i.e. managing investments, company stock, mutual funds, etc.) and to properly document the timely and proper administration of the Limited Partnership with accurate books and records.
It is important to ‘walk the walk’ and not just ‘talk the talk’. A Limited Partnership that is properly drafted, has a business purpose, is run in a business-like manner, and is established well before the death of the founder has a much better chance of withstanding any audit and proving to be an example of ‘how to do it right’.
October 1, 2009
Trading As a Limited Company
Joseph Robert Neil James asked:
Many small ‘Self Employed’ business people, shy away from forming a limited company, mainly because they think it is too involved too costly or beyond their capabilities to achieve company Director status. However, many of the ‘Self Employed’ also consider they would lose too many perks by having to declare all their income to the ‘Inland Revenue’, when trading as a Limited company.
A friend of mine who runs his own business, gives me pleasure by just being associated with him. One day I asked him, why he had not registered as a Limited company, his reply was ‘because I have full control of my business, without having to refer to anyone’. By NOT being registered as a Limited company, he could in the future, lose all property he progressively purchased with profits from his successful business.
The average small business is usually controlled by ONE person and his/her - wife/partner, both sharing the day to day decisions controlling and developing their business. They would be ideal for registering as a Limited company, providing they were prepared to declare all their company profit to the ‘Inland Revenue’.
The minimum requirement in the UK for forming a Limited company is ONE person who will act as Director for the company and ONE person who will act as Secretary for the company (The Director cannot also be the Secretary of the company). At least ONE shareholder must be willing to purchase a single £1.00 company share. The shareholder CAN be the company Director or company Secretary.
The ‘Self Employed’ business name you are trading with at present, may not be available to register as a Limited company because the name may have already been registered. This means you would need to consider several trading names, until you find one that has not been registered, as a Limited company.
However, It is NOT wise to appoint your wife/partner as a Director, if it can be avoided but you could appoint he/she to the position of company secretary because if he/she is appointed as a Director, you will experience problems in the future. It is also NOT advisable to appoint your Sons and Daughters as Directors because they will only appreciate their own personal interests and must be allowed to explore their Eager Desires.
Many small ‘Self Employed’ business people, shy away from forming a limited company, mainly because they think it is too involved too costly or beyond their capabilities to achieve company Director status. However, many of the ‘Self Employed’ also consider they would lose too many perks by having to declare all their income to the ‘Inland Revenue’, when trading as a Limited company.
A friend of mine who runs his own business, gives me pleasure by just being associated with him. One day I asked him, why he had not registered as a Limited company, his reply was ‘because I have full control of my business, without having to refer to anyone’. By NOT being registered as a Limited company, he could in the future, lose all property he progressively purchased with profits from his successful business.
The average small business is usually controlled by ONE person and his/her - wife/partner, both sharing the day to day decisions controlling and developing their business. They would be ideal for registering as a Limited company, providing they were prepared to declare all their company profit to the ‘Inland Revenue’.
The minimum requirement in the UK for forming a Limited company is ONE person who will act as Director for the company and ONE person who will act as Secretary for the company (The Director cannot also be the Secretary of the company). At least ONE shareholder must be willing to purchase a single £1.00 company share. The shareholder CAN be the company Director or company Secretary.
The ‘Self Employed’ business name you are trading with at present, may not be available to register as a Limited company because the name may have already been registered. This means you would need to consider several trading names, until you find one that has not been registered, as a Limited company.
However, It is NOT wise to appoint your wife/partner as a Director, if it can be avoided but you could appoint he/she to the position of company secretary because if he/she is appointed as a Director, you will experience problems in the future. It is also NOT advisable to appoint your Sons and Daughters as Directors because they will only appreciate their own personal interests and must be allowed to explore their Eager Desires.
September 27, 2009
Limited Liability Company Operating Agreement Essentials
Amy McDaniel asked:
The Limited Liability Company Operating Agreement is important for every LLC business. Knowing what absolutely must be addressed in this document can avoid business disputes and possible business failure. You are making an investment of money and time in your new business. Make sure your business is based on a solid foundation. This is assured by having a proper agreement for your limited liability company.
ESSENTIAL #1: Always Have a Written Limited Liability Company Operating Agreement.
If an LLC fails to adopt an operating agreement, it is subjecting itself to a set of default operational and governance rules set forth in the laws. It is quite clear that every body of law assumes a limited liability company will have a written agreement with operating details. It only provides default provisions to address the situation where an LLC fails to adopt one.
Don’t place the fate of your business at risk by subjecting it and its owners to a generic set of rules. You will find that most default provisions will not be suitable to your business. For example, some LLC laws say that each member shares EQUALLY in the profits of the limited liability company regardless of how much each contributes in terms of money and services. This is usually not the intention.
ESSENTIAL #2: Every Member and the LLC Itself Must Sign the Limited Liability Company Operating Agreement
An Operating Agreement for a limited liability company is the primary document between and among the owners of the business entity. In most cases, the LLC itself is also a party to this document. First, you must always be sure that every Member and the company itself signs the Agreement.
A big mistake made is when one goes through the effort preparing an LLC Agreement but then fail to have every relevant person sign it. Every member and an officer of the LLC must sign it.
ESSENTIAL #3: The Limited Liability Company Operating Agreement Grants LLC Authority
When it comes to a multi-member limited liability company, one common issue that arises as an LLC business grows and evolves is that at some point there becomes too many cooks in the kitchen. In other words too many people who have authority to act on behalf of and bind the business entity.
At the very beginning of the life of a limited liability company, the management structure must be decided. Generally, there are two options: member managed and manager managed.
A member managed structure gives every member the authority and right to manage and conduct business on behalf of the limited liability company. While the member managed structure is the most common and is generally appropriate for a single member LLC, it does have limitations as more members are admitted to the limited liability company.
Think early whether it is always going to be the case that every person admitted as a member will be active and executive level managers of the LLC. If not, use a manager managed structure. This will save you a lot of time and headaches later.
ESSENTIAL #4: The Limited Liability Company Operating Agreement Must Evidence the Breakdown of Ownership
You would be surprised how many times people get together and orally agree on who will own what in a business venture. They then set up a limited liability company to run the venture and they never document, in writing, the relative ownership.
Later, as memories fade and the business gets prosperous, the owners disagree on the ownership. This causes a lot of time and money spent on nonproductive activity. Remember, once disputes and then litigation ensue, everyone loses except the lawyer.
Always, always, always document the specific and relative ownership of each Member in the LLC Agreement and keep this up to date as new members come in or additional ownership units are issued to existing members.
The Limited Liability Company Operating Agreement is the most important document for an LLC business. Take the time and effort to make sure it is properly customized for your situation and signed by all proper parties. Then, on a continuing basis, make sure it is properly amended and updated as the LLC business evolves.
The Limited Liability Company Operating Agreement is important for every LLC business. Knowing what absolutely must be addressed in this document can avoid business disputes and possible business failure. You are making an investment of money and time in your new business. Make sure your business is based on a solid foundation. This is assured by having a proper agreement for your limited liability company.
ESSENTIAL #1: Always Have a Written Limited Liability Company Operating Agreement.
If an LLC fails to adopt an operating agreement, it is subjecting itself to a set of default operational and governance rules set forth in the laws. It is quite clear that every body of law assumes a limited liability company will have a written agreement with operating details. It only provides default provisions to address the situation where an LLC fails to adopt one.
Don’t place the fate of your business at risk by subjecting it and its owners to a generic set of rules. You will find that most default provisions will not be suitable to your business. For example, some LLC laws say that each member shares EQUALLY in the profits of the limited liability company regardless of how much each contributes in terms of money and services. This is usually not the intention.
ESSENTIAL #2: Every Member and the LLC Itself Must Sign the Limited Liability Company Operating Agreement
An Operating Agreement for a limited liability company is the primary document between and among the owners of the business entity. In most cases, the LLC itself is also a party to this document. First, you must always be sure that every Member and the company itself signs the Agreement.
A big mistake made is when one goes through the effort preparing an LLC Agreement but then fail to have every relevant person sign it. Every member and an officer of the LLC must sign it.
ESSENTIAL #3: The Limited Liability Company Operating Agreement Grants LLC Authority
When it comes to a multi-member limited liability company, one common issue that arises as an LLC business grows and evolves is that at some point there becomes too many cooks in the kitchen. In other words too many people who have authority to act on behalf of and bind the business entity.
At the very beginning of the life of a limited liability company, the management structure must be decided. Generally, there are two options: member managed and manager managed.
A member managed structure gives every member the authority and right to manage and conduct business on behalf of the limited liability company. While the member managed structure is the most common and is generally appropriate for a single member LLC, it does have limitations as more members are admitted to the limited liability company.
Think early whether it is always going to be the case that every person admitted as a member will be active and executive level managers of the LLC. If not, use a manager managed structure. This will save you a lot of time and headaches later.
ESSENTIAL #4: The Limited Liability Company Operating Agreement Must Evidence the Breakdown of Ownership
You would be surprised how many times people get together and orally agree on who will own what in a business venture. They then set up a limited liability company to run the venture and they never document, in writing, the relative ownership.
Later, as memories fade and the business gets prosperous, the owners disagree on the ownership. This causes a lot of time and money spent on nonproductive activity. Remember, once disputes and then litigation ensue, everyone loses except the lawyer.
Always, always, always document the specific and relative ownership of each Member in the LLC Agreement and keep this up to date as new members come in or additional ownership units are issued to existing members.
The Limited Liability Company Operating Agreement is the most important document for an LLC business. Take the time and effort to make sure it is properly customized for your situation and signed by all proper parties. Then, on a continuing basis, make sure it is properly amended and updated as the LLC business evolves.
August 5, 2009
Does a Single Member LLC Need a Limited Liability Company Agreement?
Amy McDaniel asked:
A limited liability company agreement is one of the most important documents for a single member LLC to adopt for his or her business. There are several reasons why and there is one important reason why not having this agreement can be disastrous.
A common question is whether a single member LLC really needs an operating agreement? After all, that one person will be the only person who can decide on business matters, receive profit and loss allocations and accept distributions of LLC assets.
BENEFITS OF A LIMITED LIABILITY COMPANY AGREEMENT TO A SINGLE MEMBER
The most common purposes of a limited liability company agreement include issues of control, finance, fiduciary duties that appear more relevant to a multi-member LLC. However, operating agreements can provide owners of a single member LLC the same benefits.
It is essential that a single member acknowledge that his or her limited liability company is a legal entity and business vehicle separate and apart from himself or herself.
While the LLC laws do not impose a lot of formalities for operating an LLC, the legal entity still needs a set of operating and governance rules. One of the biggest mistakes a single member can make is forming an LLC and then ignoring it and not providing it with the standard and typical structures and maintenance required to operate an LLC.
The limited liability company agreement is the tool used for the owner to determine which rules should apply to the operations of the business and the document serves as a user manual for the single owner to consult when maintaining the LLC and making LLC decisions.
BIGGEST REASON FOR A SINGLE MEMBER LLC TO ADOPT A LIMITED LIABILITY COMPANY AGREEMENT
Because a single member LLC has only one owner, it is uniquely susceptible to a challenge by third parties when it comes to the limited liability of the single owner.
Third parties will argue the classic alter ego theory that the veil of protection should be pierced and the single owner should be personally liable for a business obligation because, in essence, the single member is really the true business party running and owning the business that has caused some damage or liability.
Because of this higher vulnerability, it is essential that the single member do what he or she can to succeed in defending this challenge.
By adopting a limited liability company agreement, you are underscoring this challenge because the very existence of an operating agreement evidences the distinctness and legal separation between the single member and the LLC.
This document shows the legal agreements between the member and the LLC as two separate persons and it provides the legal entity itself with its own set of governance and operational rules. It is strong support to show that the single member does and has been recognizing its business as a separate person and this is the essential foundation for limited liability protection.
The good news is that adopting an agreement for a single member LLC is much simpler than for multi-member businesses. There are no conflicts or matters to negotiate among several members.
It really just involves the single person thinking through the best way to operate the LLC business based on what the business entails and what third parties the business will interact with.
One way I recommend starting the process for preparing and adopting a limited liability company agreement is to first focus on what parties will be using it and need to review it. From there, you can be sure your final agreement addresses all the necessary matters.
A limited liability company agreement is one of the most important documents for a single member LLC to adopt for his or her business. There are several reasons why and there is one important reason why not having this agreement can be disastrous.
A common question is whether a single member LLC really needs an operating agreement? After all, that one person will be the only person who can decide on business matters, receive profit and loss allocations and accept distributions of LLC assets.
BENEFITS OF A LIMITED LIABILITY COMPANY AGREEMENT TO A SINGLE MEMBER
The most common purposes of a limited liability company agreement include issues of control, finance, fiduciary duties that appear more relevant to a multi-member LLC. However, operating agreements can provide owners of a single member LLC the same benefits.
It is essential that a single member acknowledge that his or her limited liability company is a legal entity and business vehicle separate and apart from himself or herself.
While the LLC laws do not impose a lot of formalities for operating an LLC, the legal entity still needs a set of operating and governance rules. One of the biggest mistakes a single member can make is forming an LLC and then ignoring it and not providing it with the standard and typical structures and maintenance required to operate an LLC.
The limited liability company agreement is the tool used for the owner to determine which rules should apply to the operations of the business and the document serves as a user manual for the single owner to consult when maintaining the LLC and making LLC decisions.
BIGGEST REASON FOR A SINGLE MEMBER LLC TO ADOPT A LIMITED LIABILITY COMPANY AGREEMENT
Because a single member LLC has only one owner, it is uniquely susceptible to a challenge by third parties when it comes to the limited liability of the single owner.
Third parties will argue the classic alter ego theory that the veil of protection should be pierced and the single owner should be personally liable for a business obligation because, in essence, the single member is really the true business party running and owning the business that has caused some damage or liability.
Because of this higher vulnerability, it is essential that the single member do what he or she can to succeed in defending this challenge.
By adopting a limited liability company agreement, you are underscoring this challenge because the very existence of an operating agreement evidences the distinctness and legal separation between the single member and the LLC.
This document shows the legal agreements between the member and the LLC as two separate persons and it provides the legal entity itself with its own set of governance and operational rules. It is strong support to show that the single member does and has been recognizing its business as a separate person and this is the essential foundation for limited liability protection.
The good news is that adopting an agreement for a single member LLC is much simpler than for multi-member businesses. There are no conflicts or matters to negotiate among several members.
It really just involves the single person thinking through the best way to operate the LLC business based on what the business entails and what third parties the business will interact with.
One way I recommend starting the process for preparing and adopting a limited liability company agreement is to first focus on what parties will be using it and need to review it. From there, you can be sure your final agreement addresses all the necessary matters.
July 28, 2009
How To Start A Limited Liability Corporation
Allan Wilson asked:
Have you ever thought about starting your own business? Yes, might be, but you are not sure how to go for it. If you are thinking of Starting a Limited Liability Company, then don’t worry. The following article will explain you briefly all the steps required for starting a Limited Liability Company.
The very first step towards Starting a Limited Liability Company is deciding the name for your company. You have to pick up a winning name for your business. Select a name that will identify the products and the services of your company. In many states, the name should also include “Limited Liability Company” or “LLC”, or any variation. Then you also have to ensure the business name you proposed is readily available and free for you to choose. See that it is not used by someone else already. You will have to do some research to find pout that another business is not using the name that is similar to that of yours.
The next step in forming a LLC is registering the name of your company with the local or the state government. Your business name gets registered automatically once you file your articles of organization and incorporation with the state office. This ensures that no other company will be able to use this name, because your name gets registered once and for ever with the state government.
Then you have to create as well as sign the operating agreement that will govern the workings of your company. It will make nom sense in running your company without an operating agreement. The operating agreement is of great importance as it guards the status of the company, heads the management and financial misunderstandings and ensures that your business is governed y some proper rules.
The next step in Starting a Limited Liability Company is filing your articles of organization with the Secretary of the State. You are also required to obtain the licenses from the local, state or the federal government for forming your LLC.
Starting a Limited Liability Company is an essential resource for the real estate investors, small business owners as well as for the accountants. Its formation will, provide long term benefits to your business in the long run. To make your company run smoothly, it is always better to consult an experienced business attorney, as the laws for the formation of the company may differ from state to state.
Have you ever thought about starting your own business? Yes, might be, but you are not sure how to go for it. If you are thinking of Starting a Limited Liability Company, then don’t worry. The following article will explain you briefly all the steps required for starting a Limited Liability Company.
The very first step towards Starting a Limited Liability Company is deciding the name for your company. You have to pick up a winning name for your business. Select a name that will identify the products and the services of your company. In many states, the name should also include “Limited Liability Company” or “LLC”, or any variation. Then you also have to ensure the business name you proposed is readily available and free for you to choose. See that it is not used by someone else already. You will have to do some research to find pout that another business is not using the name that is similar to that of yours.
The next step in forming a LLC is registering the name of your company with the local or the state government. Your business name gets registered automatically once you file your articles of organization and incorporation with the state office. This ensures that no other company will be able to use this name, because your name gets registered once and for ever with the state government.
Then you have to create as well as sign the operating agreement that will govern the workings of your company. It will make nom sense in running your company without an operating agreement. The operating agreement is of great importance as it guards the status of the company, heads the management and financial misunderstandings and ensures that your business is governed y some proper rules.
The next step in Starting a Limited Liability Company is filing your articles of organization with the Secretary of the State. You are also required to obtain the licenses from the local, state or the federal government for forming your LLC.
Starting a Limited Liability Company is an essential resource for the real estate investors, small business owners as well as for the accountants. Its formation will, provide long term benefits to your business in the long run. To make your company run smoothly, it is always better to consult an experienced business attorney, as the laws for the formation of the company may differ from state to state.
June 26, 2009
Benefits of the LLC - Limited Liability Company
Amy McDaniel asked:
If you are thinking of starting a new business, one necessary matter is determining what business structure you will use. There are 4 major benefits of an LLC for a business owner. Given the low costs to forming an LLC, learn how the limited liability company can help you with liability protection and to create a profitable business.
LIABILITY PROTECTION
The greatest of all benefits of an LLC is protection from being personally liable for the debts and obligations of your business. Without the use of a limited liability entity such as an LLC, you would be placing everything you own at risk. In the world today where the number of lawsuits filed every day is always increasing, this liability protection is so important.
TRUSTORWORTHY IMAGE
The second of the benefits of an LLC is that it positions your business as a more trustworthy business. Just the mere fact that the business owners chose a limited liability company as the official business vehicle to run and operate their business evidences intelligent and serious planning.
Anyone can come up with a name and call themselves a business. With so many fly by night and fake businesses out there, customers seem to distinguish the legal entity businesses as more trustworthy.
By forming a limited liability company as your business, you will be perceived as more trustworthy which goes a long way for a new business when it comes to getting new customers and establishing your brand.
TAX CHOICES AND LEGITIMACY
Another great advantage is that the LLC business qualifies for a single layer of taxation without having to meet any complex requirements with the Internal Revenue Service. This tax structure is helpful to the new business owner because it avoids the double taxation of the corporate tax structure and allows owners to take advantages of business losses on their personal tax returns each year.
In a few cases, the corporation tax structures may be more beneficial than the single layer tax structure. In this event, an LLC is allowed to elect to be taxed under a corporate tax structure. After forming a limited liability company, the LLC must make an election for this tax treatment within 75 days.
When it comes to taxation, business owners should keep proper records and follow the proper tax and accounting procedures to avoid tax audits. Sole proprietorships are at least 6 times more likely to get audited. This has to do with business legitimacy. As with customers, the IRS knows that it is easy for someone to claim they have a sole proprietorship business and try to claim business deductions.
By going through the effort of forming a limited liability company and operating a business through an LLC, it is a sign of a higher likelihood of a legitimate business with valid business deductions.
OPERATIONAL SIMPLICITY AND FLEXIBILITY
The fourth of the benefits of an LLC include simplicity and operational flexibility. The laws allow the members to determine the best set of operational and governance rules applicable to their business.
This is a great benefit because after forming a limited liability company because you are able to customize the rules for how your LLC will be most effectively operated.
While I have outlined several benefits, the limited liability company offers so much more. When forming a limited liability company, the costs are minimal and the entity is designed to be easy to maintain and operate.
If you are thinking of starting a new business, one necessary matter is determining what business structure you will use. There are 4 major benefits of an LLC for a business owner. Given the low costs to forming an LLC, learn how the limited liability company can help you with liability protection and to create a profitable business.
LIABILITY PROTECTION
The greatest of all benefits of an LLC is protection from being personally liable for the debts and obligations of your business. Without the use of a limited liability entity such as an LLC, you would be placing everything you own at risk. In the world today where the number of lawsuits filed every day is always increasing, this liability protection is so important.
TRUSTORWORTHY IMAGE
The second of the benefits of an LLC is that it positions your business as a more trustworthy business. Just the mere fact that the business owners chose a limited liability company as the official business vehicle to run and operate their business evidences intelligent and serious planning.
Anyone can come up with a name and call themselves a business. With so many fly by night and fake businesses out there, customers seem to distinguish the legal entity businesses as more trustworthy.
By forming a limited liability company as your business, you will be perceived as more trustworthy which goes a long way for a new business when it comes to getting new customers and establishing your brand.
TAX CHOICES AND LEGITIMACY
Another great advantage is that the LLC business qualifies for a single layer of taxation without having to meet any complex requirements with the Internal Revenue Service. This tax structure is helpful to the new business owner because it avoids the double taxation of the corporate tax structure and allows owners to take advantages of business losses on their personal tax returns each year.
In a few cases, the corporation tax structures may be more beneficial than the single layer tax structure. In this event, an LLC is allowed to elect to be taxed under a corporate tax structure. After forming a limited liability company, the LLC must make an election for this tax treatment within 75 days.
When it comes to taxation, business owners should keep proper records and follow the proper tax and accounting procedures to avoid tax audits. Sole proprietorships are at least 6 times more likely to get audited. This has to do with business legitimacy. As with customers, the IRS knows that it is easy for someone to claim they have a sole proprietorship business and try to claim business deductions.
By going through the effort of forming a limited liability company and operating a business through an LLC, it is a sign of a higher likelihood of a legitimate business with valid business deductions.
OPERATIONAL SIMPLICITY AND FLEXIBILITY
The fourth of the benefits of an LLC include simplicity and operational flexibility. The laws allow the members to determine the best set of operational and governance rules applicable to their business.
This is a great benefit because after forming a limited liability company because you are able to customize the rules for how your LLC will be most effectively operated.
While I have outlined several benefits, the limited liability company offers so much more. When forming a limited liability company, the costs are minimal and the entity is designed to be easy to maintain and operate.
June 19, 2009
Form Your Own Limited Liability Company - Mark the Corporate Marquee
Ryan Graff asked:
Many of us cherish the dream of owning our establishment at some point of time in our lives instead of struggling on all our lives. This dream stems from our wish to lead a financially secure life and being our own bosses when it comes to professional satisfaction. The corporate scenario in the UK has witnessed the diversification of the whole operation into various branches for eager entrepreneurs to choose from. You can register between a wide range of choices like public limited company, private unlimited company, limited by guarantee company and limited liability company.
All these options have their own unique traits that distinguish them from each other. Depending on individual preferences, people who desire to establish their own business unit can go for one of the options. Since, a number of successful business ventures have showcased a tinge of partnership in some way or the other, these options have been designed with a view to offer the same streak for the budding businessmen.
As a business venture, a limited liability partnership is a legal venture that offers all the traits of a normal organisation with the exception of limited liability. The biggest advantage of this limited company is that the members can enjoy the flexibility to organise their internal structure as a traditional partnership. This form of company can be either a pre-existing firm or a newly registered firm that can be incorporated by two or more persons with a view to make a profit out of the business operation.
There are some important steps on your way to form your own limited liability company [http://www.companieshouseonline.com/content/view/65/54] that bids you pay careful attention to its completion. Since, the process entails some serious thought process and lots of official steps, hiring the assistance of professional agents go a long way in making the process fairly easier.
Many of us cherish the dream of owning our establishment at some point of time in our lives instead of struggling on all our lives. This dream stems from our wish to lead a financially secure life and being our own bosses when it comes to professional satisfaction. The corporate scenario in the UK has witnessed the diversification of the whole operation into various branches for eager entrepreneurs to choose from. You can register between a wide range of choices like public limited company, private unlimited company, limited by guarantee company and limited liability company.
All these options have their own unique traits that distinguish them from each other. Depending on individual preferences, people who desire to establish their own business unit can go for one of the options. Since, a number of successful business ventures have showcased a tinge of partnership in some way or the other, these options have been designed with a view to offer the same streak for the budding businessmen.
As a business venture, a limited liability partnership is a legal venture that offers all the traits of a normal organisation with the exception of limited liability. The biggest advantage of this limited company is that the members can enjoy the flexibility to organise their internal structure as a traditional partnership. This form of company can be either a pre-existing firm or a newly registered firm that can be incorporated by two or more persons with a view to make a profit out of the business operation.
There are some important steps on your way to form your own limited liability company [http://www.companieshouseonline.com/content/view/65/54] that bids you pay careful attention to its completion. Since, the process entails some serious thought process and lots of official steps, hiring the assistance of professional agents go a long way in making the process fairly easier.
February 26, 2009
Is Limited Tort Right For Me?
Greg Artim asked:
It’s that dreaded time of year again, time to renew your automobile insurance policy. For some time now, you have been considering going with a different company to see if you can save any money. At the appointment with your new agent, he asks, “Would you like to select Limited Tort? It will save you on your premium.” For the shortsighted person, the inquiry ends there and the answer is YES! Anything to save money. For the respected thinkers amount us, though, the inquiry should go much further. What exactly is Limited Tort? Its an option on your automobile insurance policy that essentially waives your right to recover for pain and suffering if you are injured in an accident. In return for this, you save a few dollars on your insurance premium. The savings varies case by case, and depends upon your age, location and number of drivers in your home, among other things. My wife and I are the only drivers in our home, and we are in our mid 30’s. Our savings for a six month policy would have been $17. Others that I know have been offered more substantial savings, up to a few hundred dollars per year. The question for you is whether the savings is worth it. In my case, $17 clearly is not. Being an attorney and dealing with Limited Tort cases on a day to day basis, there is probably no amount that would be worth it to me.
You have to realize exactly what you are giving up if you choose Limited Tort. You are giving up your right to sue for pain and suffering that may occur in an auto accident that was not your fault. Picture yourself sitting at a red light, waiting for the signal to turn green. An unattentive driver strikes you from behind, forcing you into the steering wheel. You suffer a broken nose, broken ribs, headache, whiplash and back pain. You go to physical therapy for two months. Nothing seems to relieve the back pain, you may endure this for some time. Now imagine that you have selected Limited Tort on your auto insurance policy. You and the family members in your vehicle will not be able to recover for pain and suffering for any of those injuries just described.
There are exceptions to the Limited Tort rule and they vary from state to state. In Pennsylvania, where I practice law, the threshold for overcoming the Limited Tort election is if the injury suffered is classified as a severe disfigurement, a serious impairment of bodily function or death. This means that if you suffer an injury as stated in the previous sentence, you will be able to pursue a pain and suffering claim even if you have chosen the Limited Tort election.
Careful consideration is required before choosing the Limited Tort option. From a legal standpoint, it is never a good idea. At the very least, you should be aware of what you are giving up if you make the Limited Tort election.
It’s that dreaded time of year again, time to renew your automobile insurance policy. For some time now, you have been considering going with a different company to see if you can save any money. At the appointment with your new agent, he asks, “Would you like to select Limited Tort? It will save you on your premium.” For the shortsighted person, the inquiry ends there and the answer is YES! Anything to save money. For the respected thinkers amount us, though, the inquiry should go much further. What exactly is Limited Tort? Its an option on your automobile insurance policy that essentially waives your right to recover for pain and suffering if you are injured in an accident. In return for this, you save a few dollars on your insurance premium. The savings varies case by case, and depends upon your age, location and number of drivers in your home, among other things. My wife and I are the only drivers in our home, and we are in our mid 30’s. Our savings for a six month policy would have been $17. Others that I know have been offered more substantial savings, up to a few hundred dollars per year. The question for you is whether the savings is worth it. In my case, $17 clearly is not. Being an attorney and dealing with Limited Tort cases on a day to day basis, there is probably no amount that would be worth it to me.
You have to realize exactly what you are giving up if you choose Limited Tort. You are giving up your right to sue for pain and suffering that may occur in an auto accident that was not your fault. Picture yourself sitting at a red light, waiting for the signal to turn green. An unattentive driver strikes you from behind, forcing you into the steering wheel. You suffer a broken nose, broken ribs, headache, whiplash and back pain. You go to physical therapy for two months. Nothing seems to relieve the back pain, you may endure this for some time. Now imagine that you have selected Limited Tort on your auto insurance policy. You and the family members in your vehicle will not be able to recover for pain and suffering for any of those injuries just described.
There are exceptions to the Limited Tort rule and they vary from state to state. In Pennsylvania, where I practice law, the threshold for overcoming the Limited Tort election is if the injury suffered is classified as a severe disfigurement, a serious impairment of bodily function or death. This means that if you suffer an injury as stated in the previous sentence, you will be able to pursue a pain and suffering claim even if you have chosen the Limited Tort election.
Careful consideration is required before choosing the Limited Tort option. From a legal standpoint, it is never a good idea. At the very least, you should be aware of what you are giving up if you make the Limited Tort election.