If you begin operating a business without forming an entity first, you run the risk of exposing your business assets AND your personal assets to all debts and claims against the business. In addition, many of the expenses of starting and running the business may not be deductible. This is also the case if two or more people run a business as a general partnership or a joint venture. If the business is an entity, expenses may be deductible. Also, entities are protected from claims of personal creditors and protect your personal assets from business claims or disgruntled employees. In order to maximize the tax benefits and to protect your personal assets from the risks of the business, some form of ownership “entity” needs to be utilized.
Which entities are available in Texas?
- Corporations, “S” or “C”
- Limited Partnerships, Limited Liability Partnerships
- Limited Liability Companies
What about physicians and other medical professionals?
- Professional Associations (“PA”)
- Professional Limited Liability Companies (“PLLC”)
What about CPAs and attorneys?
- Professional Corporations (“PC”)
- Professional Limited Liability Companies (“PLLC”)
Which entity to choose?
Our legal services include counseling on the pros and cons of the various types and advantages of business entities as well as the turn-key creation of those entities specific to your circumstances. Because there are income tax reasons that impact our client’s decisions to form specific entities to run their businesses, details such as business purpose, form of ownership, powers, officers, governing powers, permitted transfers, tax partners, incapacity and death all impact designing the business. In asset protection cases, we like to work with our client’s CPA and other professionals as a “team” to design the business. This approach is designed to provide clients with all of the information required when beginning business formation and planning and helps a client determine which entity will provide the client with the best tax advantages and the most efficient business model.
What happens to the business when an owner leaves?
There are additional issues that arise when two or more people are associated with a partnership or a business. For example:
- What is the plan when one of the associated owners dies or becomes incapacitated?
- Does the business have a contingency plan for management?
- Is there a buy-sell agreement in place? If so, how will it be funded?
- Is there an employee retirement plan?
- Do you, as the owner, have a Health Savings Plan?
- What if the IRS has begun to look at your corporate entity and its compliance issues? Are you in compliance?
All of these issues can impact the success of your business venture and the business entity’s ability to protect your company’s assets.