Tag: Plan

Choice of Business Entity (Part 1)

Congratulations, you have decided to start a new business.  You are going to become an “entrepreneur”, a business owner.  You have put together your business plan, located potential business premises, talked with your advisors, and are ready to get started.

You have talked with an attorney and an accountant and they have advised you to form a “business entity”.  Now you have to decide which one is right for you.  So, what are your choices?  Following are just a few options:

Sole Proprietorship.  You could own and operate the business and not form a separate entity.  This is generally the “simplest” legal way of owning and operating a business.  Other than obtaining the required business licenses, all you need to do is to put an “open for business” sign up and you are ready to go.  The business is owned by only one individual and “dies” when the owner either stops doing business or dies.  The individual owner has unlimited liability for all obligations of the business.

Partnership.  If you have decided to go into business with other owners, you could form a partnership.  There are two kinds of partnerships:  general partnerships and limited partnerships.

In a general partnership, you and your partners will have unlimited liability for acts and obligations of the business, including those incurred by any of the partners in the business.  If you have no agreement, the partnership will be governed solely by the laws regarding partnerships in your state.  Without an agreement, if one partner dies or withdraws, the partnership terminates.

In a limited partnership, there must be at least one general partner who manages the affairs of the partnership and who will be liable for all the acts and obligations of the partnership.  The “limited partners” may not participate in the management of the partnership and are treated as investors.  They will not generally be liable for the acts and obligations of the partnership.  The partnership must file a Certificate of Limited Partnership in the state in which it wishes to organize.

In proprietorships and general partnerships, there can be serious legal consequences to the individual(s) who operate the business.  As pointed out, a sole proprietor, while “King” of the business, has unlimited liability for the obligations of the business.  General partners are entitled to their share of the business income, but also have unlimited liability.  Limited partners may not participate in management, but have limited liability.

So, what can a business owner do to limit his or her liability?

[To be continued, in Part 2, where we will discuss Corporations and LLCs, two of the more preferred ways of operating a business in order to minimize personal liability].

If you are starting a business and have any questions, please contact:

Morris R. Saunders at:

312-368-0100 or msaunders@lgattorneys.com.

Why the Business Owner Should Plan for Business Continuity

Many business owners do not believe that they will die while they own the business.  They feel that they have all the time in the world to plan for the succession of their business.  Often the owner will have the attitude of “If I die…”, not “When I die…”. Business owners have a tendency to believe that there will always be more time to make decisions relating to succession planning.  Often owners face various personal obstacles to plan for the future of the business without them, such as:

Unwillingness to plan.  The owner may be unwilling to plan, believing that he or she is in charge and no one can tell him or her “what to do”.

Inability to Plan. The owner may believe that he or she does not know how to plan for the succession of the business.

Mistaken Belief That a “Good” Will or Trust Is Enough. The owner may believe that his or her estate plan is sufficient.

Unrealistic Expectations of the Future.  The owner may believe that the business is so successful and there is so much wealth involved, that the business can take care of itself.

Conflict Between Business Succession and Financial Security.  The owner may believe that the owner’s financial security is dependent upon the business and that if the owner relinquishes control, then there will be no financial security.

Fear of Making the Wrong Choice.  The owner may have a fear that he or she is making the wrong choices for leadership or for ownership of the business.

Fear of an Adversarial Process. The owner may feel that he or she does not want to fight with the next generation and that everyone will end up angry with each other.

It is very important for the owner to overcome the typical fears associated with the business succession planning process.  A proper plan is more than an estate plan and is intended to give the owner a high degree of control over the process, provide the business with the greatest chance to succeed without the owner’s day to day involvement and to provide the owner with the greatest opportunity to enjoy financial security.  If you do not properly plan for the continuity of your business, then the relationships the business has with its employees, vendors, customers and others may be jeopardized.  Also, if you have family members in the business or key, trusted employees, then you should plan for the continuity of the business and communicate with them what your plans are. It does not have to be an adversarial process. If you fail to properly plan for the business and decide to leave it to chance, then you are leaving your (and possibly your family’s) financial security to chance.

We have helped many business owners plan for the transition of the ownership and management of their businesses to the next generation and have helped them successfully implement that plan. As a result, the owners have managed to maintain a degree of control over the process to the extent that they desired and they have also helped ensure their financial security.

We would be pleased to answer any questions you might have and to help you through this process. If you have any questions about planning for the continuity of your business, please contact:

Morris R. Saunders at:

msaunders@lgattorneys.com or 312-368-0100

testimonials

"We've worked with Levin Ginsburg since the 1980s...we have grown with them and have a very high level of comfort and confidence with this firm." Jay Nichols, President,
Badger Murphy
"Astute, responsive and practical. Those are three reasons why we work with Levin Ginsburg." Bryan L. Oyster, V.P. and General Manager,
Bentley Forbes