The Business Wealth Preservation Group, LLC, Taxes - Consultants & Representatives, Fox Lake, IL

The Best Legal Entity Structure

Too many business owners mistakenly believe, the simple act of incorporating their business protects their personal assets - unaware that significant exceptions exist that undermine their limited liability. Unfortunately, for the unprepared, attorneys are very adept at exploiting these exceptions to pierce the corporate veil and seize a business owner's personal assets.

Accordingly, a business owner's home, vacation home, personal bank account, cars, boats, personal investments and portfolios can be exposed to business litigation. The operation of the business is the most likely source of litigation against the owner. Liability could arise from an owner, an employee, a subcontractor, a product, or a service. No business owner can micromanagement every aspect of their business – but there are ways to structure and operate the business to greatly reduce the likelihood of loss of personal and business assets.

Caution: Proactive Planning is a critical aspect of successful asset protection planning. The Plan must be in place before the event or legal cause of action occurs. Once the activity occurs that creates the litigation – it's too late to shield assets. Think of it as a snapshot of facts as they existed at the time of the event. Any asset transfer or restructuring of entity(s) attempting to alter that snapshot, will be ignored by the courts. Everything will resort back to the facts as they existed at the time of the event.

Clearly, one of the most important considerations of operating a business is the legal entity structure of the business. It impacts tax planning, asset protection, the likelihood of surviving litigation, compensation and benefit options, and retirement and tax deferral options to name a few.

What's the Best Entity Structure to run your business and hold assets? You have many options:

S-Corporation C-Corporation LLC Partnership Limited Partnership Sole Proprietorship

The legal entity structure from which the business operates and assets are held, dictate what options the ownership group can take advantage of for Comprehensive Strategic Tax Planning, Asset Protection, and Wealth Building. The best answer creates as many advantages as desired from a tax and legal standpoint. This is the mistake most business owners make – "I'm a S-Corporation because that's what my accountant picked!?!" Too many advantages and disadvantages exist both in the tax code and in legal practice to ignore and make an uninformed, hasty decision. An incorrect decision will have a serious impact on your financial future.

The best entity structure can only be determined after analyzing many issues from both a Tax and Legal perspective:

Goals and Objectives of the owner(s)
Types of Products and Services offered
Types and Usage of assets
Existence of rental property or the ability to create rental property advantages
Active versus Passive income
Compensation and Benefit planning
Retirement planning
Succession planning
Exit Strategy
Wealth Building