Organizational Planning
When advising our clients on the choice of business entity, we consider the advantages and disadvantages of each type. If more than one entity is involved, we also determine whether clients can deal with the complexity of the resulting structure.
The host of issues confronted is organized into four categories:
- Capitalization
- Compensation
- Allocation of Profits and Losses
- Distributions
Further analysis can be divided between tax and nontax issues, as follows:
| Tax Issues | Nontax Issues | |
| Sale of business | Limited liability protection | |
| Tax rate exposure | Capital structure | |
| Use of losses | Stockholder and buy-sell agreements | |
| Compensation package | Type of business/investment activity | |
| Complexity | State law | |
| State tax issues |
Selecting the right entity for its operations is an important issue for every business. Whether a corporation or a limited liability company (LLC) is the better choice is not always obvious. The selection involves numerous legal and tax issues and should involve the client’s or employer’s attorney. We consider all the facts and alternatives and, above all, understand the client’s objectives. Fortunately, the choice-of-entity question does not have to be answered absolutely. The majority of closely held businesses engage in more than one business activity, and it’s possible to use a different entity for each. Owners of closely held businesses often ignore the structural barriers between entities (and sometimes between their business and personal activities); they tend to treat all the businesses as one entity. This can have significant negative repercussions, particularly for limited liability protection and income taxes.
Please contact us to discuss entity issues as early as possible as you develop your strategic plan.
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