Whether you're a current or future small business owner,
protection planning extends well beyond
your personal assets by being aware of and maximizing your
Since your business is likely to be your riskiest undertaking,
you'll need to consider carefully the organizational form in which
your business is conducted. While you can choose to run your
business as a sole proprietorship, partnership, corporation or
limited liability company (LLC), in most cases the LLC will offer
the most effective protection for both your personal assets outside
the business and your investment in the business itself.
But there is much more than that to consider when structuring
your business. This section sorts out all the specific
considerations that must be examined when making an entity choice,
including the best way to set up your financing, what tax and
securities issues should be addressed, and how best to secure the
protections afforded to you by law.
Choosing an Organizational Form for Your Business examines the
characteristics of all of the business forms available to you,
including the newest business entities, such as the limited
liability limited partnership (LLLP), and an alternative and
superior form of the corporation: the statutory close corporation.
Also discussed are the most recent developments in laws governing
LLCs, which make LLCs more widely available to business owners,
and which add to the LLC's advantages over other forms.
Comparing the LLC and Corporation builds on the material
presented in "Choosing an Organizational Form for Your Business"
by providing a more detailed and comprehensive comparison of these
two most useful business forms.
We compare and contrast the two forms, including discussions of
protection from liability, costs of formation and operation,
income and self-employment taxes, retirement and fringe benefits,
securities and estate planning issues, etc.
Holding and Operating Companies details an important strategy
that should be considered by every small business owner--using a
two-entity structure. In this type of arrangement, an operating
entity will carry out the actual business functions and a holding
entity will own the major capital assets of the company, often
including the operating entity itself. In this way, you can
provide a nearly impermeable shield for your business assets
against the claims of business and personal creditors. It is
possible for business owners who desire a simplified structure to
personally act as the holding entity, although in that case the
liability shield will not be as strong.
The discussion of funding strategies includes a description of
which assets should be invested within the business form, and
which assets should be owned outside of the form, as well as the
proper mix of assets between an operating entity and a holding
Choosing a State allows you to make an informed decision when
deciding on the state in which your business entity will be
formed. The liability and internal affairs of a business entity
are governed by the laws of the state in which it is formed, not
the state in which it operates. While forming the business in your
home state may offer simplicity and cost savings, states such as
Delaware and Nevada may, in some cases, offer superior liability
and other offsetting advantages.
Planning for Federal Estate Taxes examines an
often-overlooked, but important, issue in business formation. A
business that thrives and grows will produce tremendous wealth for
its owner. Yet, in the absence of effective estate planning, much
of this wealth may be paid to the federal government in the form
of estate taxes, rather than to the owner's family, when the
business owner dies. The strategies contained within this section
will help to preserve that wealth.
Securities Law Issues includes an examination of the
complexities of federal and state securities laws. An
understanding of this is essential because solicitations of
capital from even small numbers of individuals can result in
civil, and even criminal, penalties, if you do not comply with the
restrictions imposed by these laws.
Aspects of Funding Decisions completes the discussion of
issues that surround structuring and funding your business. In
particular, funding a business entity with services or assets
subject to liabilities can have important tax consequences, in
terms of the immediate recognition of taxable income, as well as
the tax basis of your investment in the business. Tax basis, in
turn, affects the allocation of the entity's income among its
owners, and the amount of gain that owners realize when they sell
Establishing the Business Entity is the capstone to this
section. After you have chosen a particular business form, the
particular state in which you will create the entity, and the
structure for the business, you must actually form the entity or
entities that will make up this structure by completing certain
documents, filing them with the proper authorities and paying the
We describe the actual process of forming an entity, registering
to do business in other states and using a fictitious name. We
also emphasize the use of proper documentation when forming a