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542 days ago
Even Nolo, my corporate-law publisher -- a company loaded with lawyers and staff personnel who can easily separate legal wheat from chaff -- gets bogus corporate correspondence selling ersatz compliance services. One official-looking legal letter came into the controller's office recently. It was from an "agency" calling itself the Corporate Minutes Compliance Counsel, or somesuch, and it strongly advised (warned, really) that Nolo send the Board a payment of $125 to prepare its state-mandated domestic corporation statement. Failure to do so could result in dire consequences, the letter advised, including a loss of corporate status with the Secretary of State. Nolo's controller, who has years of experience with real and bogus corporate service solicitations, shredded this letter immediately. Even though the letter contained a statement that was carefully designed to mimic the official state form, she knew she had already filed the real statement with the state for the ...567 days ago
State entity-filing offices -- typically a division or department of the office of the Secretary of your state -- have made it simple to convert one type of entity to another. Many provide a simple entity conversion form for this purpose. Just check the appropriate boxes on the conversion form, add some simple boilerplate as explained in the instructions to the form, file the form, and you're done. The new business is formed, the assets of the old business are transferred to the new business, and the old business is dissolved. All of this happens automatically by operation of law according to each state's entity conversion statute. What could be simpler? Of course, nothing is quite so simple when law and taxes are involved, and both come into play when a business is converted to a new legal form. Let's look at a common type of conversion: the conversion of a co-owned LLC to a corporation. Normally, an LLC-to-corporation conversion is tax-free if the prior business owners are in ...
579 days ago
After I read the new check-the-box tax regulations that provided default tax treatment for different types of businesses, I suffered the usual post-traumatic tax research distress: sinus pressure, slight dizziness, and irritability. The language was arcane and circular - for example, a one-owner business is referred to as "an entity with a single owner that may be disregarded as an entity separate from its owner" and the organization of the material was all over the place. Nonetheless, I was impressed that the IRS seemed to have decided to treat business entities in a sensible way. The way I read it, the new regs said that a one-person unincorporated business, including a one-owner LLC, would be treated for tax purposes as a sole proprietorship; a two-person unincorporated business, such as a co-owned LLC, as a partnership; and a corporation as a corporation. The regs also seemed to say that any business could change its tax treatment by filing an election form. ...
581 days ago
Some entrepreneurs, with the help of their legal and tax advisers, use the LLC or corporation as a tool to minimize taxes, avoid personal liability, and generally help them provide legal cover for their personal and business assets.Asset protection strategies range from the mundane to the exotic. Having witnessed several clients and friends suffer through lawsuits and IRS tax audits, my preference is for the use of LLCs or corporations only when they make sense in the context of a real-world business: to lower taxes on profits, or to protect the personal assets of business owners from claims made against their solidly financed and adequately insured operations. However, when business owners attempt to use entities primarily as a means to achieve a legal or tax advantage unconnected to their actual business operations -- for example, as an asset-protection device -- they may find that the time, trouble, and expense of defending later lawsuits and IRS audits outweighs or frustrates ...586 days ago
A colleague pointed me to a blog (Dos and Don'ts of Holding Home's Title in LLC) that recommended several strategies for limiting an owner's legal liability for rental properties. One was extending the owner's homeowner and umbrella insurance policies to cover rental properties; another was the use of separate LLCs to hold title to each rental property. A third recommendation was to add a second member to each property LLC to help make it more official and less prone to legal attack. Here is the response I posted as a comment to the blog: I'd like to offer several observations and critiques of this article's analysis: The article implies that homeowner's and umbrella policies automatically extend to commercial real estate. This is probably the case for single-family income property owned by a homeowner, since insurers sometimes agree to extend a homeowner policy to single-family rentals (for an extra cost). But if the rentals are multi-family, the owner probably needs to ...
