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Business Formation & Planning

There are a number of options available when considering what type of entity to form: sole proprietorship, partnership, limited liability company, or corporation. Then within each of these entities there are further elections or options to select. For instance, if you select corporation, it may be advantageous for the enterprise to elect S Corporation status. If you select a limited liability company, if it is often advantageous to report as a partnership rather than a corporation for income tax purposes. Certain business types or professions are required to use select entities.

A popular entity is the limited liability company. These are frequently utilized to provide liability protection to owners for assets such as rental real estate properties to insulate the owner’s other assets from activity and potential liability at the real property owned by that limited liability company.

Sales and gifting of membership unit interests of a limited liability company, interests of a partnership and stock shares of a corporation may be part of a comprehensive estate plan which afford an opportunity to transfer assets from one generation to another while taking advantage of valuation discounts.

There are a myriad of tax benefits for entity selection. Different entities afford minimization or deferral of income tax. Further, consideration should be given for how business losses could be offset by the owner’s other individual income. Certain entities may offer a better protection from income and estate tax for the appreciation of business assets. There are methods to transfer title to assets which are more efficient than others. There is a degree of exposure to liability among the various enterprise types. Some entities are more flexible when it comes to transfer of ownership, management and financing. Other entities permit more than one level of ownership type. There are costs to form and comply with local and federal laws once an entity is formed. Ongoing income taxation and compliance often play a role in entity selection as well. Depending on the priorities of the owner, one entity type will likely stand out and be more beneficial. With all the possibilities available, it is important to have an attorney who can guide you to consider the options.