Salt Lake City Estate Planning

The Inherent Dangers of Single Member LLCs

This case illustrates the inherent dangers of the Single Member LLC — which is they are “an alter ego case waiting to happen”

LLCs, or “Limited Liability Corporations,” can be excellent vehicles to accomplish just what their names suggest - limiting liability.

That said, I stumbled across a recent message of caution regarding some LLCs, and the court case of Martin v. Freeman, ___ P.3d ____, 2012 WL 311660, 2012 COA 21 (Colo.App., Feb. 2, 2012) to back it up, both of which are worth sharing.

You might say that an LLC is one thing, but a SMLLC, or a “single member” LLC, is a different beast entirely, at least from an asset protection point of view. To wit, the above article points out that a single member LLC is “an alter ego case waiting to happen.”

The case of Martin v. Freeman is, as you might have imagined, a “veil-piercing” case as Freeman was the sole owner of an LLC involved in some hefty litigation and sold the LLC’s property to, at least in part, help cover the legal fees of the litigation. Of course, that left the LLC with no assets to satisfy the judgment that came down against it and only one place to turn for that satisfaction: Freeman himself.

After all, Freeman had just under-capitalized the LLC, and did so by distributing funds to himself only to turn around and help pay legal fees for the LLC. “Undercapitalization” is the great leveler of corporations when it comes to asset protection and with little difference on record between “Freeman the LLC owner” and “Freeman the individual,” the corporate veil fell apart. Freeman was held personally liable.

This is one more lesson on a subject that always bears repeating. Single member LLCs aren’t exactly flawed by nature, but they are often the easiest to muck up. In the end, keeping things straight between yourself as the “business owner” and yourself as the “individual” requires some vigilance and diligence.

Reference: Forbes (February 5, 2012) “Martin: The Inherent Dangers Of The Single Member LLC And Alter Ego Veil Piercing”

Contact us today to ensure your Single Member LLC is not flawed.

 

Retirement Perspectives from Small Business Owners

Retirement plans have their place, but many entrepreneurs starve their business of needed working capital by putting money instead into tax-deductible accounts such as traditional 401(k)s. They think they are saving taxes. 

Small business owners, by and large, have a hard time thinking beyond their business. It is a significant part of their very lives. If you are a small business owner, now may be the time to start thinking of your business as its own retirement vehicle, at least according to a recent guest columnist over at Forbes.

For retirement planning, a business owner typically has to take out of the business what would otherwise be capital for growth. You’re taking it out to put into a tax advantaged plan like a 401k, hoping it will grow there enough to make up for the taxes to be paid later. In addition, you are doing so in the belief that you’ll be in a lower tax bracket when you call upon those funds later on. But what are the returns on that account? It may be that a properly capitalized company will give far greater returns.

According to the Forbes article, a small business owner has to exist in a couple capacities, and the self that is an “individual” cannot be eclipsed by the self that is the “business owner,” nor the other way around. Ideally, perhaps, they can work in a synergy.

It is a risky strategy, especially for those nearing retirement, but it may be worth looking into the original article’s numbers.

Reference: Forbes (January 25, 2012) “Fund Your Business Before You Stuff  Retirement Accounts”

Please visit the Estate Planning for Small Business Owners section of our website and contact us today to see how we can start helping you.

 

Small Business “Smoke And Mirrors”?

The government’s top official charged with advocating for small business is now a member of the White House cabinet, President Obama announced.

There’s a lot of movement on Capitol Hill these days, or at least there is the potential for it, and it’s largely in the name of small business. President Obama has recently expanded his cabinet with the addition of the chief of the Small Business Administration (SBA). 

Is it going to work for you?

As reported here in Businessweek, and in many places beyond, President Obama has launched an initiative to reorganize and condense six of the agencies responsible for various segments of the economy, not least of which being the SBA.

There is still concern that it may end up being a largely symbolic gesture, and perhaps also only a pre-election “political move.”

So, how will it affect you?

According to Robb Mandelbaum over at the New York Times, the reaction is mixed amongst small business persons.

Reference: Bloomberg Businessweek (January 13, 2012) “Obama Makes SBA Chief a Cabinet Member”

Please contact us to see how we can help with all your small business needs.

LLC Planning For Your Business and Family

I am frequently asked by small business owners if they should have a separate LLC or multiple LLCs for their assets. The answer is “it depends” on what your objective is for considering this.

When it comes to understanding your estate and planning for it, the key concept is ownership. How do you own your assets? How should you own your assets? How can you easily pass along this ownership to your loved ones?

When it comes to business assets, whether in the context of ordinary day-to-day operations or as a business owner setting up your estate plan, ownership is still the name of the game. One question that arises, then, is whether your assets should be spread across separate or multiple LLCs.

I came across a recent article in CPA Magazine and, according to the author, whether you should start splintering your assets into multiple LLC depends a great deal on what you hope to accomplish. No surprise there.

However, to many it’s simply a question of liability and risk protection, but then there are other goals. Namely, splitting into multiple business entities will allow your company to move the ownership of assets around between family members or employees without necessarily dividing the business.

This can be accomplished with some careful planning, corporate due diligence, and transactions like the sale-leaseback or, more in the vein of estate planning, the gift-leaseback. In that latter play, the business owner either leases or gifts the asset away and then immediately leases it back, thereby spreading ownership but retaining the operations of the company. Of course, not all business assets are well equipped for this practice, but others are perfectly positioned, especially those that deal in large equipment or vehicles.

It’s not quite as simple in practice, and diligence is a necessity, but for many small and family owned businesses this fractured structure will allow a great deal of leeway.

Whether it truly is right for you will take some thought and competent counsel at your side. In the end, it all comes down to your own unique goals, first for your business and second for your family.

Reference: CPA Magazine (2011) “How to Determine if a Separate LLC is Right for Your Assets”

Please visit our website for more information on how we can help with your LLC planning.

 

Employee Retirement Plans...Easier Than You Might Think

Business owners should rethink what they "know" about sponsoring retirement plans, says the founder of a firm that administers 401(k)s for small companies.

It’s the last week of the year, and if your small business does not already have an employee retirement plan in place chances are good you’re thinking about it. Chances are also pretty good that you think it’s more difficult, and more expensive, to get started than it really is.

Bloomberg Businessweek ran an article earlier this month outlining some of the options, with hopeful advice. Nearly three-quarters of small employers do not sponsor retirement plans for their employees, perhaps because of outdated negative notions about their costs and complexity. If you are a small business owner, now may be the right time to revisit the concept of employee retirement plans. The options may be more attractive than you think.

Reference: Bloomberg Businessweek (December 6, 2011) “Establishing an Employee Retirement Plan”

 

Business Succession Planning Protocol

The challenge for many small family-owned businesses in succession planning lies in choosing a successor and deciding how the business will be governed when you are not there.

When someone starts talking about “business planning,” too often they just mean getting it off the ground or, if they have high aspirations, how to make it fly once airborne. Of course, “business planning” also is about keeping the business aloft through turbulence (e.g., bad markets) and even should the pilot-in-command become unable to fly (e.g., retirement, incapacity, or death).

In the end, a proper business plan for any small business, but especially for a family business, always entails some form of succession planning.

I just ran across a Forbes article that ran a few months ago, yet is forever timely on this subject. This article illustrates just how important coordinated succession planning and estate planning are in the context of a family-owned business.

If you run such a businesses, whether it’s a small shop or a large company, oftentimes your personal wealth and the wealth of the family are tied up with the business itself and your ability to keep running it. [Not to mention any lines of credit your signature and personal assets may secure.] What happens when you fall ill or pass away?

“That day” is not always a day you can see coming or you can delay.

The biggest hurdle to any succession plan is planning for your own successor. Let’s face it, running a business is tough and jumping on board while the carousel is moving can be a dicey proposition.

While the Forbes article has some specific advice, undoubtedly it will take measured thought and time to form and implement an effective succession plan. Then again, there also must be the contingency of deciding simply to sell the business. Either way, whether you ultimately continue the business or sell it, careful planning is a must.

In many ways, it’s not just for your own sake or for the sake of your family that the business has to be protected with proper planning. A business means employment for many people and often wealth for a community. It’s timely news, then, to find that small businesses created 55,000 new jobs this past November.

Oh, if no one has thanked you lately for being a business owner then by all means, then let me say “thank you.”

Reference: Forbes (October 12, 2011) “Identifying a Successor for Your Family-Owned Business”

 

 

 

Business Succession Planning Protocol

The challenge for many small family-owned businesses in succession planning lies in choosing a successor and deciding how the business will be governed when you are not there.

When someone starts talking about “business planning,” too often they just mean getting it off the ground or, if they have high aspirations, how to make it fly once airborne. Of course, “business planning” also is about keeping the business aloft through turbulence (e.g., bad markets) and even should the pilot-in-command become unable to fly (e.g., retirement, incapacity, or death).

In the end, a proper business plan for any small business, but especially for a family business, always entails some form of succession planning.

I just ran across a Forbes article that ran a few months ago, yet is forever timely on this subject. This article illustrates just how important coordinated succession planning and estate planning are in the context of a family-owned business.

If you run such a businesses, whether it’s a small shop or a large company, oftentimes your personal wealth and the wealth of the family are tied up with the business itself and your ability to keep running it. [Not to mention any lines of credit your signature and personal assets may secure.] What happens when you fall ill or pass away?

“That day” is not always a day you can see coming or you can delay.

The biggest hurdle to any succession plan is planning for your own successor. Let’s face it, running a business is tough and jumping on board while the carousel is moving can be a dicey proposition.

While the Forbes article has some specific advice, undoubtedly it will take measured thought and time to form and implement an effective succession plan. Then again, there also must be the contingency of deciding simply to sell the business. Either way, whether you ultimately continue the business or sell it, careful planning is a must.

In many ways, it’s not just for your own sake or for the sake of your family that the business has to be protected with proper planning. A business means employment for many people and often wealth for a community. It’s timely news, then, to find that small businesses created 55,000 new jobs this past November.

Oh, if no one has thanked you lately for being a business owner then by all means, then let me say “thank you.”

Reference: Forbes (October 12, 2011) “Identifying a Successor for Your Family-Owned Business”

 

 

 

Small Business Owners – Beware Of New Credit Card Paperwork

A new Internal Revenue Service rule could make life trickier for most businesses that get paid with credit cards — from online retailers to the local deli.

Whether you make every deal for your business with a handshake or you fastidiously create, execute, and file away every bit of paperwork, you probably don’t like paperwork. And, you’re not alone.

Unfortunately, a new IRS rule may involve even more paperwork for you, if your business gets paid by credit cards.

As the Wall Street Journal reports, this year credit-card companies are required to track the dollar amounts that individual merchants get from credit card transactions. In turn, the credit card companies then report this information to both the IRS and the merchant on 1099-k forms. The IRS made the rule so it’s prepared, but is your business prepared?

If you’ve been reporting your income properly all along, then you have little to fear. However, it does mean a good amount of extra work if you want to be sure that the credit-card company is correct. This means an entirely new accounting protocol for which many firms are simply unprepared … and are likely unaware they’re about to face.

According to Melissa Labant, technical manager at the American Institute of CPAs, the new law "creates an administrative burden to separately account for different transactions — and to break it down month by month if they want to reconcile to the 1099-Ks they receive."

Reference: The Wall Street Journal (November 14, 2011) “New IRS Rule Creates (What A Shock!) More Paperwork”

 

 

Don’t Let Your FLP Flop!

The moral of the story is that in order for the plan to work you must have coordination between the attorney who prepares the plan and the accountant who will be preparing the relevant returns. If you don’t want to trouble yourself with what entity should pay what bill or accept what deposit, etc., let that piece be handled by your professionals, also, but again in an integrated manner. There has to be somebody who cares what account is used, because that is their job.

And now for an understatement: “Family Limited Partnerships Require Good Planning and Execution.”

If you’re a fan of business law horror stories, then this recent article by Peter Reilly at Forbes and the case of Estate of Paul H. Liljestrand v. Commissioner should be both entertaining and instructive. The subject is the role of the Family Limited Partnership (FLP), an entity common to small business and estate law alike, and the problems that can be created.

You’ll need to read the story for yourself, as well as Reilly’s asides, but the bottomline wisdom is that an FLP, like any other business entity, exists on at least three fronts. First, what you do with the partnership itself. Second, the accounting system of money going in and out of the FLP. Third, and of utmost importance, the FLP is a legal entity with various requirements of which real honesty is essential.

To my ears, it sounds like the case above is a failure on all three fronts – it’s a mess – but Reilly identifies a disconnect between the accounting and the legal aspects to be the most fundamental downfall. In the end, the moral is to ensure you’re doing it right, or, as Reilly concludes:

The moral of the story is that in order for the plan to work you must have coordination between the attorney who prepares the plan and the accountant who will be preparing the relevant returns. If you don’t want to trouble yourself with what entity should pay what bill or accept what deposit, etc., let that piece be handled by your professionals, also, but again in an integrated manner. There has to be somebody who cares what account is used, because that is their job.

Check out the full story.

Reference: Forbes (November 12, 2011) “Family Limited Partnerships Require Good Planning and Execution”

 

 

 

Independent Contractor Amnesty – Will States Enter The Fray?

I’ll bet you’re wondering: Will IRS Independent Contractor Amnesty Cover States Too? It’s too soon to say in many cases, but some states are picking up the IRS deal.

If you’re a small business owner using independent contractors, then you’ve probably been watching the new IRS independent contractor amnesty campaign. I’ve written about this subject here before and it has become a hot topic for many business news sources. Now, there’s a new twist – will the states adopt the campaign too?

According to Forbes, states may be entering the fray in their own way.

Taking on talent is a big deal. Indeed, hiring itself can be a big deal on a small budget; so many employers walk a fine line with their workers; are they employees or are they independent contractors? To the IRS, that’s no fine line and they’re not fond of those who cross back and forth knowingly (or unknowingly, for that matter). As with several other initiatives over the years, the IRS has chosen to show its kinder, gentler, side with an amnesty program to allow employers to “reclassify” independent contractors as actual employees (under the assumption that they ought to have been classified as such).

The kink in the works, as with all federal issues that address issues that independently concern the states, is whether the states would follow suit. For a business owner, why accept amnesty from the IRS only to be hammered by your home state?

According to Robert Wood at Forbes, some states are turning to the amnesty, like Minnesota. Of course, Minnesota also is adding some extra information requirements, extra qualifications, and a deadline where the IRS has none.

Will your home state begin amnesty, as well? And if it does, how will you go about safely navigating both state and federal programs? Contact out office today and we will walk you through all the answers to these questions.

Reference: Forbes (October 25, 2011) “States Start Conforming to IRS Independent Contractor Amnesty”