Establish & Restructure Business Entities
Effective business succession planning does not change the qualities and values that make a business unique and successful, but rather amplifies and leverages those qualities while seeking to position the business for continued and future success. We work closely with business owners to understand and analyze the workings of their business and present strategies that accomplish their objectives, without compromising their business’ unique qualities.
In working with an owner, we may recommend establishing a new business entity or restructuring an existing business entity, to address considerations such as:
- Income taxes paid by the business and the owners – Shifting profitable business lines or assets to pass through entities such as S corporations or limited liability companies (LLCs) may allow owners to reduce their effective tax rates.
- Controlling proceeds from an anticipated sale of the business – As a result of past planning, family members may own a portion of the business, which could result in their receiving a significant amount of money upon a business sale. By establishing a new entity where owners exchange their ownership in the existing business for ownership in the newly established parent, it may be possible to keep proceeds from the sale at the parent entity level.
- Minimizing the potential exposure of a business to liability – A business may own a product line that carries an inherent risk of significant liability, e.g., firearms. Isolating that risk in a separate LLC or other entity from other lines of business may protect the rest of the business from a catastrophic liability.
- Differences in the participation by family members in the business – Certain family members may oversee different aspects of the business. In that case, an owner may consider establishing brother-sister LLCs or other entities, and then implement a gifting plan to benefit the applicable family member taking “ownership” over that part of the business.
- Alternatively, where some family members are involved in the business and some are not, the owner may consider restructuring the business so that the underlying real property used in the business will have an LLC to own the operational assets and another LLC to own the real property. The owner may then gift or leave the operating LLC only to the family members working in the business, and leave the real property LLC to all of the family members, so that those not involved in the business may indirectly benefit from it.
- Dividing a business into separate business entities may reduce liability exposure and provide for more focused management.
- Establishing a holding company or otherwise layering business entities may provide for more effective tax planning.