A business owner’s most valuable asset is likely to be the business itself. However, business owners are often so busy managing the day-to-day operations that they fail to consider planning strategies to protect the company from creditors, prepare for the business owner(s)’ eventual exit from the company, and incorporate the business into the owner(s)’ personal estate plan.
Whether you are just starting out, or you are growing your business, the necessary planning can be overwhelming. Rhonda Miller is an experienced Fairfax business planning attorney that uses a step-by-step analysis to uncover weaknesses that may threaten the health of your business and leave your most valuable asset exposed.
The first decision in planning for any business is to determine the most advantageous entity structure.
Here is what you need to consider:
We will usually recommend one of the following types of entities:
It is well-settled business advice: the first day to plan to exit your business is the day you start your business. In truth, it just does not work that way. Everyone wants to believe he/she can sell his/her business for a lot of money and never work again but that does not happen for a lot of people. The reality is most people with very successful businesses need to have plans for what will happen to the business if they become incapacitated or they die.
There are a lot of choices. Just to name a few: let the business close, sell it to a key employee, sell it to a third party, or sell/give to a child. For all of us in business this is an issue we have faced. Notice I use the word “we.” I personally have faced this issue. I had to ask myself “what was I going to do with my own business?” It is my succession plan. I found what works for me. Now the trick is to find what works for you. What you do not want to happen is for your business to devalue because you do not do succession planning. I have worked with plenty of families where the person who was the business owner died with no succession plan. When that person dies the business becomes worth a fraction of its former value. If a succession plan was put together before the main person died, there would be much more value there.
If you own a small business with someone else, with no succession plan, you may find yourself in business with the other shareholder’s spouse. That may not be what you verbally agreed to, but it is the reality of the situation without a succession plan.
A good way to provide asset protection for rental property is to put them in an entity. There are several entities to choose from such as LLC, FLLC, LLP and FLLP. The right fit will depend on your circumstances. In order for the asset protection to work the entity must own the rental property. That means the title must be changed from your name to the name of the entity.
Why do you need an entity? The Law treats the property owner as the guarantor of the safety of his or her tenants and their guests. If anyone is injured on the premises, for any reason, the fault does not matter, and the owner of the property can be held responsible. Many property owners think “I have insurance and that is enough protection.” Insurance is a great first line of defense. However, insurance does not protect against everything. What happens if you have a leak in your rental property that results in mold? Your tenants may have an adverse reaction to the mold. Mold is now specifically excluded by insurance.
Without an entity, the tenant can go after all of your assets. With an entity, the liability is limited to the net value of the property.
A lot of factors go into putting rental properties in an entity. Some things to consider are as follows:
Business owners should take the appropriate steps to minimize risk, lower tax liability and protect the assets of the business, as well as their personal assets. It is an unfortunate reality that businesses are attractive targets for lawsuits, creditor claims, and disgruntled employees.
Properly drafted documents are the first defense against these situations. Rhonda has a strong background in litigation and knows firsthand that a well-drafted document can often save you a trip to court.
Some of the services we offer to protect your company are:
Many business owners make the mistake of thinking they can save money by drafting their own business documents instead of hiring a business attorney. Unfortunately, if you use boilerplate legal language for your business that fails to address the specific needs of your business or the state where your business operates, this money saving idea can have financially devastating consequences.
Most one-size-fits-all documents do not deal with what happens if the unexpected happens. Our office has helped many families navigate through unexpected business and personal traumas. The lack of proper planning or improper agreements and business protections can mean business owner’s heirs must spend time, energy, and anxiety to pick up the pieces. No one should settle for boilerplate legal solutions.
Rhonda has been helping clients like you for more than 20 years. She will work with you to develop the documents that reflect your wishes and needs. Call 703-442-3890 today to schedule an appointment or contact her online now.