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McCloud Law Group Legal Blog

Wednesday, June 18, 2014

What property is protected in Chapter 7 & 13 ?

 

What Property Is Safe from Sale in Chapter 7 and Chapter 13 Bankruptcy?

Bankruptcy is perhaps the most effective way to eliminate unmanageable debt. It is a highly structured, entirely legal process that has helped millions of individuals and families emerge from the frustrating, demoralizing and expensive path of minimum payments and impossibly high interest rates. Yet, numerous families who could eliminate debt and get back on their financial feet choose not to file. Why?

A common deterrent to filing for bankruptcy is confusion and misinformation regarding the sale of property during the bankruptcy process. This is unfortunate because bankruptcy laws are devised specifically to protect certain property types from sale during bankruptcy. In fact, those who file under Chapter 13 bankruptcy, assuming they qualify, experience no loss of property at any point during the bankruptcy process. Instead, under Chapter 13 bankruptcy, filers simply restructure their debt payments under court order and remaining debt is discharged at the end of the debt repayment plan.

Chapter 7 bankruptcy involves the sale of certain property, including second homes, “extra” vehicles and other property that can be sold to pay off outstanding debt. Many types of property, though, are protected from sale during the Chapter 7 bankruptcy process. These are different from state to state, but can include, to varying degrees, the following:

 

  • A primary home, i.e. a “homestead”. A primary home can be a single family home, a mobile home, a boat, a condominium, a townhouse or other form of home
  • A vehicle or vehicles
  • Personal property such as clothing, furniture and appliances
  • Jewelry, art and heirlooms to a varying level of value
  • Income and financial assets from Social Security and from personal injury and wrongful death actions up to varying levels
  • Tools of a trade, such as equipment, materials, uniforms, books, tools, furnishings and a motor vehicle
  • Various property such as building materials, health aids, a burial plot, books and animals
  • Numerous forms of pensions as well as public and private retirement benefits

Additional property can often be deemed exempt during the bankruptcy process as the filer works with the bankruptcy court.

Chapter 7 offers numerous advantages in the pursuit of eliminating unmanageable debt. When nonexempt property is sold, the proceeds aren’t forfeited by the bankruptcy filer. Instead, they are used to reduce the filer’s debt. And importantly, many types of debt that remain unpaid after nonexempt property is sold is discharged, or “forgiven”. Types of dischargeable debt can include:

  • credit card debt
  • debt owed directly to retailers
  • health care debt
  • unpaid utility bills
  • debts due to lawsuits
  • rental and lease debt, and
  • deficiencies remaining after the repossession of a car or the foreclosure of a house.

While filers are not able to discharge income tax debt less than 3 years old, child support debt, student loan debt and criminal fines debt, many other forms of debt are dischargeable.

Bankruptcy options are best explored with the help of a knowledgeable bankruptcy attorney. A bankruptcy attorney can answer your questions and provide a recommended course of action based on the specifics of your unique debt challenges.


Monday, June 9, 2014

Chapter 7 vs. Chapter 13 ?

 

Chapter 7 or Chapter 13 Bankruptcy: Deciding Which Will Work Best for You

 

If you’re trapped under a growing mountain of bills without any hope of resurfacing, you’ve probably considered how bankruptcy can help you.  If you’re largely unfamiliar with bankruptcy laws, you should gain an understanding of the key differences between Chapter 7 and Chapter 13 bankruptcy. Each of these two bankruptcy options provide specific benefits designed to address particular financial challenges. 
 
The Benefits and Characteristics of Chapter 7 Bankruptcy
 
Chapter 7 bankruptcy is most useful to parties without substantial disposable income. No repayment plan is used (because of income challenges). Instead, property is sold and the proceeds are used to pay down debt. 
 
A key component of Chapter 7 bankruptcy is the distinction between exempt and non-exempt property. Non-exempt property can be sold. Exempt property cannot. Non-exempt property varies by jurisdiction, but generally includes:
  • Second homes and vacation homes
  • Vehicles beyond a certain value and quantity
  • Expensive and valuable items and collections 
  • Cash, bank accounts and investments accounts
Examples of exempt property (i.e. property that will not be sold in bankruptcy) include: 
  • A primary home, i.e. a “homestead”, which can be a single family home, a condominium, a townhouse, a mobile home or other form of primary home
  • Varying financial assets, including most types of retirement assets 
  • A vehicle 
  • Personal and household property
  • Heirlooms 
  • Tools of a trade, including equipment, uniforms, books and vehicles
For both exempt and non-exempt property, value limits of vehicles, household property and other types of property vary by location.
 
A key advantage of Chapter 7 bankruptcy is that extensive debt is discharged once the bankruptcy is complete, regardless of whether the proceeds of sold property go very far in covering the amount of debt in question.
 
The Benefits and Characteristics of Chapter 13 Bankruptcy
 
Chapter 13 bankruptcy resembles Chapter 7 bankruptcy in that debt is discharged or “forgiven” at the end of the bankruptcy process. Chapter 13 bankruptcy differs from Chapter 7 bankruptcy in the way debt is reduced. Instead of relying on the proceeds of sold property to reduce debt, Chapter 13 bankruptcy consolidates and reduces a filer’s monthly debt payments. 
 
How to Proceed in Investigating Bankruptcy Options
 
When deciding whether to pursue Chapter 7 vs. Chapter 13 bankruptcy, would-be filers must weigh the advantages and disadvantages of selling non-exempt property over the advantages of retaining all property but retaining (reduced) monthly debt payments. Each filer’s decision regarding which bankruptcy type to use may depend on his or her circumstances and the opinions of the courts. For further information regarding Chapter 7 and Chapter 13 bankruptcy, contact a bankruptcy lawyer. 
 

Wednesday, May 28, 2014

Important Considerations for Business Partners

11 Important Issues Business Partners Should Consider

Many people decide to start their own businesses because they’re intrigued by the idea ofbeing their own boss.  All decisions, risks, and rewards are yours and yours alone.  This equation changes, however, when you decide to start and run a business in partnership with another person.  Many of the freedoms, risks and rewards are similar – but there are unique questions that business partners should ask each other to help ensure the relationship starts and continues smoothly.

Before and during the process of developing a business partnership, it is crucial to ask and answer the questions below.  

  1. What goals do I have for this business?  What goals does my partner have?  What if one partner wants to create a business that will provide income for his family for several years or decades and the other partner wants to build a company that will grow quickly and sell well?  These are not necessarily incompatible goals, but it is important to get these goals onto the table to discuss how to start and run a business that might meet both partners’ goals.
     
  2. What is each partner’s level of commitment in terms of time?  You can prevent a major source of partner conflict by being explicit about how much time each of you expects to spend working on running and developing the business.  Will either of you work full-time for your business at the beginning?  Will either of you have other work commitments?  If so, are there any situations in which that partner will close out other work or business commitments to focus more energy on this endeavor?
     
  3. How will cash invested by partners be treated?  Will cash investment be treated as debt to be repaid?  Will cash investment buy a higher level of company shares?  Will the debt be convertible?  These questions and answers also have tax implications, so it may be wise to consult a certified public accountant along with a qualified business law attorney during your start-up phase.
     
  4. How comfortable are we with change?  Change is the only constant in any business environment, and the most successful businesses are those that are highly adaptable to change – in the market, in the economy, in the personnel, etc.  That said, business partners should have a conversation about their “sticking points” – those aspects of the business that one or another partner does not want to change.  One partner may be fully committed to the specific product being produced, whereas another partner may be unwaveringly dedicated to a certain market segment.  Learn each other’s “sticking points” now to minimize conflict during the inevitable periods of change and adjustment as the business ages and grows.
     
  5. How much will we pay ourselves?  Who has the authority to change compensation amounts in the future?  This issue is related to the question of who is investing how much cash into the business during the start-up phase.  Compensation can be a volatile issue.  Regardless of how difficult the conversation may be, partners must thoroughly discuss pay structure at the very beginning of a business relationship to minimize conflict down the road.
     
  6. Who will own what percentage of the company?  In other words, how will we divide the shares?  The answer to this question often depends on whether one or both partners provided cash for start-up costs, as well as the time commitment each partner plans to make.
     
  7. Who has what kinds of decision-making authority?  The answer to this question often is related to the division of shares between the partners, but this is not a requirement.  You can designate shares as voting shares or non-voting shares, and you can also choose to set up a board of directors.  The partners will have to decide which areas, if any, they each have individual authority over, which areas they must agree on, and which areas the board of directors will control.  Common areas of decision making authority include human resources (hiring and firing), capitalization, issuance of shares, and mergers and acquisitions.
     
  8. Will we sign contractual terms with the company in addition to the shareholder agreement and partnership agreement?  Two common examples of additional contractual terms are the non-compete agreement and the confidentiality or non-disclosure agreement.  If founding partners are going to sign such contracts, what will the terms of each agreement be?
     
  9. What if one or both of us wants to leave the company?  It is better to define exit procedures in the early stages of the business start-up.  If no guidelines are in place, one partner’s desire to depart can cause high conflict as formerly aligned partners try to come to agreements about ending their relationship.
     
  10. Can either of us be fired?  If so, what are the grounds for termination and who has the authority to make that decision?  What is the procedure?  Discuss and commit to writing your strategy for terminating the operational role of a co-founder if necessary.
     
  11. What is our business succession plan?  While it is not necessary to have a fully developed and executed business succession plan before starting a business endeavor, it should at least be a topic for discussion in the early stages.  Partners may have different ideas about how control over the business will pass to others in the future, and a conversation about succession planning can reveal these differences and give each partner food for thought as a plan is developed.

Have several conversations about these topics, and you will find yourself well prepared when it comes time to put your partnership agreement into writing.
 


Sunday, May 18, 2014

Interviews Dos and Don'ts

Questions You Shouldn't Ask or Answer During an Interview

Job-seekers have to be ready to respond to any interview question asked of them, but not every question has to be answered. 

To ensure that employers do not discriminate against candidates based on age, gender, race, health and family arrangements, there are certain regulations which restrict the type of questions which are permissible during an interview. Below, we explore several topics that may be problematic and should not be asked of potential employees: 

Questionable Questions

Let’s take a look at a few topics that may be problematic. 

  • Age: Does anyone like to be asked their age unless just turning 21? Probably not. While an interviewer may ask whether a candidate is over the age of 18 or 21, he or she may not ask for a specific age.  
  • Nationality: An interviewer can ask whether a candidate is legally allowed to work in the U.S., but he or she can’t ask about the applicant’s nationality or status as a citizen. 
  • Religious beliefs: Same goes for questions that ask about religious beliefs. The interviewer may be in the right if he or she needs to know if the interviewee can work on certain holidays, but otherwise, this topic should be off limits.
  • Health: While in many states an interviewer cannot ask if a candidate smokes, he or she may inquire as to whether the applicant has ever violated any corporate policies on alcohol or tobacco. Furthermore, an employer may ask whether the person being interviewed uses illegal drugs, is able to lift a given weight, or can reach items at a specific height. They also can ask if the individual is capable of completing certain tasks associated with the job and if any reasonable accommodations might be needed.
  • Family status: Employers want to know about an applicant’s availability which may sound like a legitimate concern.   They cross the red line, however, when they try to determine if a candidate has children or plans to have children in the future. An interviewer also cannot ask about an applicant’s maiden name or marital status.
  • Criminal record: A prospective employer is allowed to ask the applicant whether or not he or she has ever been convicted of a crime that relates to the job, but may be restricted from asking whether the candidate has ever been arrested.
  • Military service: An interviewer cannot discriminate against a member of the National Guard or Reserves. He or she can, however, ask if a candidate will anticipate any extended time away from work. 

Acing the Interview Process

The interview process can be a stressful time for employers and employees alike, but it will be a smoother process if you have a basic understanding of what can and can’t be asked during these initial meetings. 

As a candidate being interviewed, remember that if you’re asked a question which you’re not comfortable answering, or you think may be illegal, be sure to keep a positive attitude and try not to focus on the negative and instead deliver an answer which showcases your ability to fulfill the requirements of the job. For example, you may be asked if you can have a babysitter in a moment’s notice if an unexpected work emergency pops up. In answering this question, you may be concerned that you will be divulging too much information about your family life and, like many mothers, you may fear that they may not hire you because of the responsibilities that come along with motherhood. Rather than answering the specific question about a babysitter, you may instead wish to say “I am very flexible and am able to travel or work late when the need arises.” This answer addresses the interviewer’s question while preserving your privacy and also keeps the conversation going in a positive direction-one which showcases why you are the best candidate for the job. 

As an employer looking to hire a new employee, it’s important that everyone in your organization from the receptionist to the hiring manager who might come in contact with the candidates have a basic understanding of what topics and questions are off limits. You might even consider having a list of approved questions and a list of questions which are prohibited, regardless of the position being filled. These procedures should be a matter of strict company policy and should be reviewed each year to ensure compliance with all discrimination laws. 


Thursday, May 8, 2014

The Importance of Maintaining Corporate (or other business entities) Formalities

How to Avoid Piercing the Corporate Veil

Many business owners establish corporations to shield themselves from personal liability for business debts and protect their personal assets from creditors of the company. When established and maintained properly, a corporation is treated under the law as an independent entity, with many of the rights afforded to individuals. Such rights include the ability to own and transfer property, enter into contracts, obtain funding and to initiate legal action. A corporation is a separate, distinct entity, apart from its shareholders; as a result, only the corporation’s assets can be seized to pay judgments or satisfy other debts owed by the company.

However, the liability protection afforded by the corporate business structure is only available if the integrity of the corporation as a separate entity is respected by the courts and taxing authorities. Certain corporate formalities must be observed in order to preserve the corporation’s status as a separate entity apart from its owners. Failure to comply with these requirements may permit creditors to “pierce the corporate veil” and seek payment from the individual shareholders directly. To ensure the corporate veil remains intact, the corporation must act like a separate and distinct entity, and the shareholders must treat it as such. If certain corporate formalities are not consistently observed, a court may find that the corporation is merely an “alter ego” of the individual owner(s), and the corporate structure may be “disregarded”. When this occurs, the corporate veil is pierced and the individual shareholders can be held personally liable for the debts of the company.

Formalities that must be observed in order to preserve the integrity of the corporation and ensure the protection afforded by the corporate veil remains intact include, but not limited to the following:

Corporate Records
The corporation’s financial and corporate records must be documented. Most states also require that the shareholders and the directors meet at least once per year. A record of these meetings, in the form of minutes or written resolutions must be properly executed and maintained by the company.

Commingling of Assets
The corporation and the shareholders must treat themselves as separate entities. The corporation should have its own bank and credit card accounts.  Business owners should clearly document and account for expenditures made from corporate accounts if they were for personal benefit.

Capitalization
The corporation must be fully capitalized, or funded. This is typically accomplished by selling shares. Even in a one-person corporation, that individual shareholder must purchase his or her shares of stock in the company.  The corporation should also avoid becoming intentionally insolvent by transferring assets to the shareholders if it is likely that such transfer will inhibit the corporation’s ability to meet its financial obligations.

Failure to Pay Dividends
Payment of dividends is neither required, nor appropriate in every situation. However, if the payment of dividends is appropriate, or required, and the corporation fails to pay them, this could suggest that the corporation is actually an alter ego and not a separate legal entity.
 


Monday, April 28, 2014

Top 5 Overlooked Issues in Estate Planning

Top 5 Overlooked Issues in Estate Planning

In planning your estate, you most likely have concerned yourself with “big picture” issues. Who inherits what? Do I need a living trust? However, there are numerous details that are often overlooked, and which can drastically impact the distribution of your estate to your intended beneficiaries. Listed below are some of the most common overlooked estate planning issues.

Liquid Cash: Is there enough available cash to cover the estate’s operating expenses until it is settled? The estate may have to pay attorneys’ fees, court costs, probate expenses, debts of the decedent, or living expenses for a surviving spouse or other dependents. Your estate plan should estimate the cash needs and ensure there are adequate cash resources to cover these expenses.

Tax Planning: Even if your estate is exempt from federal estate tax, there are other possible taxes that should be anticipated by your estate plan. There may be estate or death taxes at the state level. The estate may have to pay income taxes on investment income earned before the estate is settled. Income taxes can be paid out of the liquid assets held in the estate. Death taxes may be paid by the estate from the amount inherited by each beneficiary. 

Executor’s Access to Documents: The executor or estate administrator must be able to access the decedent’s important papers in order to locate assets and close up the decedent’s affairs. Also, creditors must be identified and paid before an estate can be settled. It is important to leave a notebook or other instructions listing significant assets, where they are located, identifying information such as serial numbers, account numbers or passwords. If the executor is not left with this information, it may require unnecessary expenditures of time and money to locate all of the assets. This notebook should also include a comprehensive list of creditors, to help the executor verify or refute any creditor claims.

Beneficiary Designations: Many assets can be transferred outside of a will or trust, by simply designating a beneficiary to receive the asset upon your death. Life insurance policies, annuities, retirement accounts, and motor vehicles are some of the assets that can be transferred directly to a beneficiary. To make these arrangements, submit a beneficiary designation form to the financial institution, retirement plan or motor vehicle department. Be sure to keep the beneficiary designations current, and provide instructions to the executor listing which assets are to be transferred in this manner.

Fund the Living Trust: Unfortunately, many people establish living trusts, but fail to fully implement them, thereby reducing or eliminating the trust’s potential benefits. To be subject to the trust, as opposed to the probate court, an asset’s ownership must be legally transferred into the trust. If legal title to homes, vehicles or financial accounts is not transferred into the trust, the trust is of no effect and the assets must be probated.


Friday, April 18, 2014

Employers' Immigration Compliance

Employers and Immigration Compliance: What You Need to Know

The Immigration and Nationality Act (INA) makes it illegal for employers to knowingly hire undocumented workers and requires employers to verify each worker’s identity and eligibility by completing the I-9 Form. An employer’s failure to complete the I-9 Form can result in criminal and civil penalties.

The INA also protects individuals from employment discrimination based upon national origin, citizenship or immigration status. The Office of Special Counsel for Immigration Related Unfair Employment Practices (OSC) enforces the INA’s anti-discrimination provisions.  Victims of discrimination may file a complaint with the OSC to seek back pay, reinstatement and other remedies.

With so much at stake and so many potential pitfalls, it is important for all employers to familiarize themselves with the requirements and implement policies and procedures to ensure compliance.

Employers are prohibited from:

  • Discriminating on the basis of citizenship or immigration status, with respect to hiring, firing, recruitment or referral. This rule applies to employers of four or more employees.
  • Discriminating on the basis of national origin, with respect to hiring, firing, recruitment or referral. This rule applies to employers of between three and 15 employees. Employers may not extend different treatment to different individuals based on their birth place, country of origin, native language, ancestry or because they may look or sound “foreign.”
  • Requesting more or different documents to verify a worker’s employment eligibility. An employer may not request different or additional documents for determination of citizenship or national origin than those documents specified on the I-9 Form.  Furthermore, an employer is not permitted to reject genuine-looking documents.
  • Retaliating against an individual who files charges with the OSC, cooperates with an investigation or contests an action that may be considered discriminatory or in violation of the INA.

To improve compliance in your employment procedures, consider implementing the following practices:

  • Refrain from using discriminatory language in job postings, such as “green card only” or “U.S. citizen only,” unless it is required by law or by a government contract.
  • In completing the I-9 Form, do not request specific documents over other permitted documents. Each employee is permitted to present any document from the list of acceptable documents stated on the form.
  • Refrain from selectively verifying work eligibility for only certain employees based on their citizenship status or national origin; whatever your policy, make sure it is applied consistently to all employees.
  • Avoid the appearance of discriminatory practices by verifying employment eligibility only after you have made a hiring decision, and give the employee three days to provide the required documentation.
  • Do not immediately terminate an employee if you receive a “no match” letter from the Social Security Administration. While such a letter may mean the individual is not authorized to work in the United States, it is also possible that there is a discrepancy in the record due to a clerical error or legal name change.
  • If you suspect that an employee is not legally eligible to work in this country, notify the employee and request valid employment eligibility documents before terminating or suspending employment.

Tuesday, April 8, 2014

Foreign Nationals working in the US

Eligibility to Work in the United States

The United States government offers a number of work visas, enabling foreign-born nationals to legally enter and work in the U.S. These visas are non-immigrant visas, meaning they are issued for a specific period of time, but most work visas can be renewed, enabling the worker to remain in the U.S. for a longer period of time. Each work visa imposes different requirements on the applicant, and there are work visas available for a variety of jobs.

Work visas include the H-1B and H-2 Work Visas, the H-3 Trainee Work Visa, the O-1 Extraordinary Ability Work Visa, the P Athlete/Entertainer Work Visa, the E-1 Treaty Trader Work Visa, the E-2 Treaty Investor Work Visa, and the R-1 Religious Work Visa. Additionally, students in the U.S. on a student visa may be authorized to work on Curricular Practical Training or Optional Practical Training.  Citizens of Mexico or Canada may qualify for the North American Free Trade Agreement (NAFTA) Work Visa, provided the applicant meets all of the requirements and his or her profession is on the NAFTA list.

The most common work visas are the H-1B Work Visa for Persons in Specialty Occupations, the H-2AWork Visa for Seasonal Agricultural Workers, and the H-2B Work Visa for Temporary or Seasonal Non-Agricultural Workers.

The H-1B Specialty Occupation Visa can be issued to workers in positions which require the theoretical and practical application of highly specialized knowledge requiring completion of a specific course of higher education. This visa can also apply to other professionals, including fashion models, those working on government-to-government research and development, and those working on projects administered by the Department of Defense.

H-2A Seasonal Agricultural Visas allow U.S. employers to bring foreign nationals into the country to perform temporary agricultural jobs for which U.S. workers are not available. In addition to demonstrating that U.S. workers are not available, employers must also show that employment of these workers will not have adverse effects on the working conditions and wages of similarly employed U.S. workers.

The H-2B Seasonal Non-Agricultural Visa is similar to the H-1B in that the employer must show that the employment is temporary, that there are insufficient U.S. workers to perform the job, and that there will be no adverse effects on U.S. workers. The H-2B differs, however, in that there is a statutory maximum, or cap, on the total number of aliens who may be granted the H-2B visa in any given fiscal year. Once that cap has been reached, visa petitions may only be accepted for H-2B workers who are exempt from the cap.

Once granted a work visa, the holder is entitled to obtain a drivers license or state-issued ID in the United States, open bank and credit accounts, and travel in and out of the U.S. A visa holder’s spouse and children may be granted visas, as well, but they will not be permitted to work in the United States. When in the U.S. on a work visa, the foreign national retains his or her passport, and is only issued a United States passport upon naturalization as a U.S. citizen.
 


Friday, March 28, 2014

Pre-nup considerations before the "I DO"s

Prenup Considerations Before You Say I Do

Most people think of marriage as a declaration of love and commitment, not as a legal contract that defines the financial and familial obligations of each party. That is, until they start negotiating a divorce settlement and discover their state’s policy on the division of marital property and spousal support. Although not every couple establishes a prenuptial agreement, there are several good reasons for having a smart prenup in place before saying those magical words, “I do.”

What is a Prenup?
A prenuptial agreement is a legal document that allows the couple to make decisions about their finances and marital property should they eventually decide to part ways. You cannot circumvent the child custody statutes in your state through a prenuptial agreement, although you can decide who gets to keep the family dog. The terms of the prenup must be legal and should be fair to both parties. For instance, an agreement that would leave one spouse homeless with no source of income would not be enforceable.

A prenup is particularly useful when one, or both parties, enter into the marriage with valuable assets or has children from a previous relationship. Older couples are more likely to consider a prenup because they have more assets to lose. Those who are exchanging matrimonial vows for a second or third time recognize that having a customized financial game plan in place can make divorce proceedings less stressful.

A prenup can eliminate later disputes over assets during a divorce and save the couple from acrimonious, time consuming and stressful litigation. 

When Should You Consider a Prenup?
A prenup might be a good idea if you have any of the following concerns:

 

  • Providing peace of mind for the partner who has significantly more income or wealth
  • Making sure your business remains intact, in your name
  • Defining assets such as property, a retirement fund or investments as separate property, not marital property
  • Retaining possession of family property, heirlooms or an anticipated inheritance after a divorce
  • Looking after the long-term interests of children from a previous marriage
  • Worrying that changing your career plan to raise children will leave you at a financial disadvantage
  • Avoiding interference with an estate plan
  • Financing long-term care for elderly parents or relatives

Starting Your Marriage the Right Way
The divorce laws in most states work on the assumption that both partners in a marriage have agreed to pool their tangible and intangible assets, and the courts generally attempt to make an equitable and fair division of these assets following a divorce.  A prenuptial agreement gives you and your intended spouse the opportunity to consider potential areas of disagreement regarding your financial future and address them in a forthright and realistic manner.

 


Tuesday, March 18, 2014

Preserving the "family business" for the next generation

Family Business: Preserving Your Legacy for Generations to Come

Your family-owned business is not just one of your most significant assets, it is also your legacy. Both must be protected by implementing a transition plan to arrange for transfer to your children or other loved ones upon your retirement or death.


More than 70 percent of family businesses do not survive the transition to the next generation. Ensuring your family does not fall victim to the same fate requires a unique combination of proper estate and tax planning, business acumen and common-sense communication with those closest to you. Below are some steps you can take today to make sure your family business continues from generation to generation.

  • Meet with an estate planning attorney to develop a comprehensive plan that includes a will and/or living trust. Your estate plan should account for issues related to both the transfer of your assets, including the family business and estate taxes.
  • Communicate with all family members about their wishes concerning the business. Enlist their involvement in establishing a business succession plan to transfer ownership and control to the younger generation. Include in-laws or other non-blood relatives in these discussions. They offer a fresh perspective and may have talents and skills that will help the company.
  • Make sure your succession plan includes:  preserving and enhancing “institutional memory”, who will own the company, advisors who can aid the transition team and ensure continuity, who will oversee day-to-day operations, provisions for heirs who are not directly involved in the business, tax saving strategies, education and training of family members who will take over the company and key employees.
  • Discuss your estate plan and business succession plan with your family members and key employees. Make sure everyone shares the same basic understanding.
  • Plan for liquidity. Establish measures to ensure the business has enough cash flow to pay taxes or buy out a deceased owner’s share of the company. Estate taxes are based on the full value of your estate. If your estate is asset-rich and cash-poor, your heirs may be forced to liquidate assets in order to cover the taxes, thus removing your “family” from the business.
  • Implement a family employment plan to establish policies and procedures regarding when and how family members will be hired, who will supervise them, and how compensation will be determined.
  • Have a buy-sell agreement in place to govern the future sale or transfer of shares of stock held by employees or family members.
  • Add independent professionals to your board of directors.

You’ve worked very hard over your lifetime to build your family-owned enterprise. However, you should resist the temptation to retain total control of your business well into your golden years. There comes a time to retire and focus your priorities on ensuring a smooth transition that preserves your legacy – and your investment – for generations to come.


Saturday, March 8, 2014

Which Business Structure is Right for You ?

Which Business Structure is Right for You?

Which entity is best for your business depends on many factors, and the decision can have a significant impact on both profitability and asset protection afforded to its owners. Below is an overview of the most common business structures.

Sole Proprietorship
The sole proprietorship is the simplest and least regulated of all business structures. For legal and tax purposes, the sole proprietorship’s owner and the business are one and the same. The liabilities of the business are personal to the owner, and the business terminates when the owner dies. On the other hand, all of the profits are also personal to the owner and the sole owner has full control of the business.

General Partnership
A partnership consists of two or more persons who agree to share profits and losses. It is simple to establish and maintain; no formal, written document is required in order to create a partnership. If no formal agreement is signed, the partnership will be subject to state laws governing partnerships. However, to clarify the rights and responsibilities of each partner, and to be certain of the tax status of the partnership, it is important to have a written partnership agreement.

Each partner’s personal assets are at risk. Any partner may obligate the partnership, and each individual partner is liable for all of the debts of the partnership. General partners also face potential personal legal liability for the negligence of another partner.

Limited Partnership
A limited partnership is similar to a general partnership, but has two types of partners: general partners and limited partners. General partners have broad powers to obligate the partnership (as in a general partnership), and are personally liable for the debts of the partnership. If there is more than one general partner, each of them is liable for the acts of the remaining general partners. Limited partners, however, are “limited” to their contribution of capital to the business, and must not become actively involved in running the company. As with a general partnership, limited partnerships are flow-through tax entities.

Limited Liability Company (LLC)
The LLC is a hybrid type of business structure. An LLC consists of one or more owners (“members”) who actively manage the company’s business affairs. The LLC contains elements of both a traditional partnership and a corporation, offering the liability protection of a corporation, with the tax structure of a sole proprietorship (if it has only one member), or a partnership (if the LLC has two or more members). Its important to note that in certain states, single-member LLCs are not afforded limited liability protection.

Corporation
Corporations are more complex than either a sole proprietorship or partnership and are subject to more state regulations regarding their formation and operation. There are two basic types of corporations:  C-corporations and S-corporations. There are significant differences in the tax treatment of these two types of corporations, however, they are both generally organized and operated in a similar manner.

Technical formalities must be strictly observed in order to reap the benefits of corporate existence. For this reason, there is an additional burden of detailed recordkeeping. Corporate decisions must be documented in writing. Corporate meetings, both at the shareholder and director levels, must be formally documented.

Corporations limit the owners’ personal liability for company debts. Depending on your situation, there may be significant tax advantages to incorporating.


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250 W. Main St., Suite 3010, Lexington, KY 40507
| Phone: (859) 281-5641
531 Darby Creek Rd. #46, Lexington, KY 40509
| Phone: (859) 281-5641
113 Campbellsville Street, Columbia, KY 42728
| Phone: (270) 250-7422

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