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Individuals engaged in or contemplating a business enterprise often inquire as to the need for or purpose of a separate business entity. The reasons for the use of business entities can generally be reduced to three (3) broad categories:

1. Liability Protection
2. Tax Planning Issues
3. Ownership, Management, and Control Issues Business enterprises generally take one of five (5) general business forms: a) Sole Proprietorships, b) Partnerships, c) Limited Liability Companies (LLC’s), d) “C” Corporations, and e) “S” Corporations

The Oldham Law Firm, PLLC will work closely with you, your prospective partners or co-owners, as well as your accountants and other financial advisors to develop a business entity that will meet your specific needs and objectives PARTNERSHIPS Partnerships come in a variety of shapes and sizes. A General Partnership is generally defined as “an association of two or more persons to carry on a business for profit.” In a general partnership, all partners have the authority to act on behalf of the partnership and all partners bear individual liability for acts of any one or more of the partners.

A Limited Partnership is one in which at least one partner does not materially participate in the operation of the business. So long as the limited partner does not materially participate in the operations of the business, the limited partner’s potential losses are limited to his or her investment in the partnership. One or more general partners are responsible for the daily operation of the business.

A Limited Liability Partnership (LLP) is much like a General Partnership, but if appropriately registered according to state statute, the Limited Liability Partnership provides individual liability protection for the acts of other partners and employees of the partnership.

Whereas in a General Partnership each partner is personally liable for the acts of his or her partners and the employees of the partnership, an LLP provides personal liability protection from creditors’ claims or losses arising out of the acts of others. It is important to note that an LLP will not protect a partner who materially participates in the business for his or her own actions.

A Limited Liability Limited Partnership (LLLP) is simply a Limited Liability Partnership (LLP) that has one or more limited partners (described in Limited Partnerships above) who do not materially participate in the operation of the business.

General Partnership

For a General Partnership, there is no registration with the state or even written agreement necessary for a general partnership to be formed. The legal definition of a partnership is generally stated as “an association of two or more persons to carry on as co-owners a business for profit” (Revised Uniform Partnership Act 101 [1994]). Although a partnership can be implied by law, if you are forming a partnership you should always have a partnership agreement so that you are not at the mercy of the laws which are implied without one. Most of the law of General Partnerships applies to Limited Partnerships.

In a General Partnership, each of the partners (there can be more than 2) shares in the profits and shares in the liability of the partnership, including losses, unless the partner is a limited partner. A partnership is considered an association of co-owners for tax purposes, and each co-owner is taxed on his or her proportional share of the partnership profits.

Like other businesses, a partnership needs to have a license to do business in towns in which it has offices and may use an assumed name, so that Blow LP or GP could operate as Blow Holes.

All partners must consent in sale of the assets of the partnership. A partner’s interest in a partnership is considered personal property that may be assigned to other persons, but, if transferred, the transferee only receives the financial benefit and does not become a partner.

The death of a partner terminates the partnership, and the filing a dissolution of the partnership with the state also terminates the partnership.

General Partnerships: Advantages Partnerships typically have less costs, paperwork and state registrations involved in both formation and upkeep. However, without written documentation, the partnership becomes subject to significant default state laws.

With regard to taxes, the partnership is not a separate taxable entity, but instead the profits pass through to the partners who pay for them as income tax.

General Partnerships: Disadvantages In a General Partnership, each partner is liable for the acts of the others and financial losses of the partnership, and there is no protection of personal property as there is with a corporation. Any partner without the other may bind the partnership. Money and property contributed to the partnership becomes owned by the partnership unless otherwise stated and the contributor is not entitled to its return unless stated in the partnership agreement.

Partnerships vary in legal requirements and liabilities by state, do not have the ease of transfer and investment that a corporation structure provides and therefore are regarded as less preferable to other business forms for investment.

Limited Partnership

A Limited Partnership (LP) consists of two or more persons, with at least one general partner and one limited partner. While a general partner in an LP has unlimited personal liability, a limited partner’s liability is limited to the amount of his or her investment in the company. LP’s are creatures of statute since they must file the appropriate paperwork with the Secretary of State’s Office in order to be recognized as an official legal entity. The LP is a separate entity and thus files taxes as a separate entity.

The statute that provided for the formation of LP’s was the Uniform Limited Partnership

Act (ULPA), which dates back to 1916. In 1976, ULPA was revised into the Revised Uniform Limited Partnership Act (RULPA). RULPA provides the basis for Arkansas statute and provides that a limited partner shall not be liable as a general partner unless a limited partner materially participates in the operation of the business. There are limited activities with which a limited partner may be involved that will not, according to statutory and case law, negate the limited partner status.

Because the general partner is exposed to unlimited personal liability, LP’s are often set up so that the general partner is a corporation or LLC.

Limited Partnerships: Advantages The primary advantage of the Limited Partnership is that this form of entity facilitates the procurement of necessary capital by allowing investors into the partnership who are not actively involved with the day to day operation of the partnership’s business. These investors are also afforded liability protection for any claims or losses in excess of their investment so long as they do not materially participate in the operation of the business.

The LP also enjoys the pass through taxation feature of the partnership form with all income and losses flowing through to the personal tax returns of the partners and thereby avoiding the double taxation incurred by most corporations and their shareholders.

Limited Partnerships: Disadvantages Disadvantages of the LP form include unlimited liability for the general partner, as well as, possible unlimited liability for a limited partner who is deemed to have materially participated in the operation of the business. LP’s must also file the appropriate paperwork and pay attendant filing fees in order to be recognized as a limited liability entity.

Limited Liability Partnership

A Limited Liability Partnership is essentially a General Partnership (see General Partnership or Limited Partnership), but each partner is not to liable for certain acts of other partners. State registration is required and some states require proof that the partnership has obtained adequate liability insurance or has adequate assets to satisfy potential claims. State law typically limits LLP’s to formation by accountants, lawyers, architects and/or similar professionals.

An LLP also limits the personal liability of a partner for the errors, omissions, incompetence, or negligence of the partnership’s employees or other agents. State laws vary regarding LLP’s and only about half of the states recognize them. Each of the partners (there can be more than 2) shares in the profits and shares in the debts of the LLP, including losses, unless the partner is a limited partner. A LLP is considered an association of co-owners for tax purposes, and each co-owner is taxed on his or her proportional share of the LLP profits.

Like other businesses, a LLP needs to have a license to do business in towns in which it has offices and may use an assumed name if properly registered with the state.

All partners must consent in sale of the assets of the partnership. A partner’s interest in a LLP is considered personal property that may be assigned to other persons, but if so transferred the transferee only receives the financial benefit and does not become a partner.

The death of a partner terminates the LLP, and filing dissolution of the partnership with the state also terminates the LLP.

Limited Liability Partnerships: Advantages
LLP’s do not have the corporate procedures of annual meetings and minutes. With regard to taxes, the LLP is not a separate taxable entity, but instead the profits pass through to the partners who pay for them as income tax.

Limited Liability Partnerships: Disadvantages
Any partner without the other may bind the LLP. Money and property contributed to the LLP becomes owned by the partnership unless otherwise stated and the contributor is not entitled to its return except as stated in the partnership agreements.

LLP’s vary in legal requirements and liabilities by state, are not recognized in some states, do not have the easy of transfer and investment that a corporation structure provides and therefore are regarded as less preferable to other business forms.

Limited Liability Companies (LLC’s)

A Limited Liability Company (LLC) has characteristics of a corporation and a partnership. An LLC allows its owners not to be personally liable for debts or liabilities of the business like a corporation, but have the tax benefits of partnerships. The owners of an LLC are called members which are somewhat analogous to shareholders. A member can be a natural person, a corporation, a partnership, or another legal association or entity. The members may run the LLC themselves or through appointment of managers, who have similar levels of fiduciary duty to the LLC as do Directors of a corporation.

Limited Liability Company (LLC): Advantages
LLC’s afford small business owners the liability protection commensurate with that of corporations, but allow for considerable flexibility in regards to taxation of the entity and its owners, and all without the statutory or regulatory formalities required with regards to operation of a corporation. Single member LLC owners can elect to be taxed as a sole practitioner on their individual 1040 tax return or may elect to be taxed as a corporation. Multi-member LLC’s can elect to be taxed as a partnership (flow through entity) or may elect to be taxed as a corporation. Each of these determinations is made after considering the business owner’s specific needs and goals and consultation with the business owner’s accountants and other financial advisors.

Limited Liability Company (LLC): Disadvantages
LLC’s have similar formation, state registration, agent for service and other costs and corporate procedures to corporations. As there is no state law structure of shareholders, directors and officers already established as with corporation, and unless the state has other regulations, the LLC members create their operating structure and have an operating agreement. This typically adds additional attorneys fees for drafting the operating agreement, or otherwise increases risk of operating without one or with a poorly drafted agreement.

LLC’s vary in legal requirements and liabilities by state and do not have the ease of transfer and investment that a corporation structure provides and therefore are some times regarded as less preferable to C or S corporations.

“C” Corporations

A “C Corporation” is a corporation which is taxed under Subchapter C of the Internal Revenue Code and is the default corporation formed by incorporating. A corporation is a legal and tax entity by itself. It is similar to a person in that it has its own assets and its social security number, called a Federal Tax Identification Number.

Like other businesses, a C corporation needs to have a license to do business in towns in which it has offices and may use an assumed name, so that Blow Inc. could operate as Blow Holes.

A corporation’s assets or ownership is easily transferred through sale of the assets or sale of stock.
The death of the shareholders or directors or officers of a corporation has no effect on the existence of the corporation. A corporation must be legally dissolved to terminate.

“C” Corporations: Advantages
The primary advantage of forming a corporation is that it is a separate legal and tax entity from its owner(s). If you form a corporation, the corporation will grant you shares. As a shareholder, you are not liable for the debts or acts of the corporation as long as you obide by the corporate procedures required by law. The most you can lose as a shareholder is the amount you have paid for your shares. This means that if the corporation is sued and losses, they cannot take your home and your personal car and assets.
Another advantage is that you are regarded as more professional and business-like if you are a corporation. Venture capital and investors usually prefer to invest in corporations as they provide the most flexible and consistent procedures for business and investment. In addition, tax advantages may exist given that the corporation may be able to deduct expenses for employees, health insurance and other items which may not be deductible with other forms of businesses.

“C” Corporation: Disadvantages
The costs and effort of maintaining a corporation are higher due to legal requirements about an annual shareholder meeting, corporate minutes and other procedures which must be followed. Also, a corporation which has an office in a state other the one its incorporated in must register as a foreign corporation in that state. The cost of incorporation, maintaining an agent for service (a person to receive legal documents required by law), registered as a foreign corporation and upkeep of corporate procedure documents is higher than some other forms of business.

“S” Corporations

An “S Corporation” is a corporation which is taxed under Subchapter S of the Internal Revenue Code and must elect to do so shortly after the corporation is formed with the IRS. A corporation is a legal and tax entity by itself. It is similar to a person in that it has its own assets and its social security number, called a Federal Tax Identification Number. The shareholders of a corporation must agree to elect to be an S corporation shortly after incorporating.

Like other businesses, a S corporation needs to have a license to do business in towns in which it has offices and may use an assumed name, so that Blow Inc. could operate as Blow Holes.

A corporation’s assets or ownership is easily transferred through sale of the assets or sale of stock.

The death of the shareholders or directors or officers of a corporation has no effect on the existence of the corporation. A corporation must be legally dissolved to terminate.

“S” Corporations: Advantages
The primary advantage of forming a corporation is that it is a separate legal and tax entity from its owner(s).

Be sure to always consult your accountant since tax laws change with time and jurisdiction. If you form a corporation, the corporation will grant you shares. As a shareholder, you are not liable for the debts or acts of the corporation as long as you obide by the corporate procedures required by law. The most you can lose as a shareholder is the amount you have paid for your shares. This means that if the corporation is sued and losses, they cannot take your home and your personal car and assets.

Another advantage is that you are regarded as more professional and business-like if you are a corporation. Venture capital and investors usually prefer to invest in corporations as they provide the most flexible and consistent procedures for business and investment.

If you are a S corporation, you are not subject to the double taxation which can occur when a corporation pays income tax and then shareholders pay tax on dividends as well. There are also other tax benefits.

“S” Corporation: Disadvantages
An S corporation may have no more than 75 shareholders, may have only one class of stock, may not own more than eighty percent of another corporation, and may not have shareholders who are not US citizens or resident aliens. The costs and effort of maintaining a corporation are higher than some other business forms due to legal requirements about an annual shareholder meeting, corporate minutes and other procedures which must be followed. Also, a corporation which has an office in a state other the one its incorporated in must register as a foreign corporation in that state. The cost of incorporation, maintaining an agent for service (a person to receive legal documents required by law), registered as a foreign corporation and upkeep of corporate procedure documents is higher than some other forms of business.

A well drafted and implemented estate plan promotes the orderly and harmonious transfer of family wealth, while ensuring the maximum protection of privacy and control. A typical well-implemented estate plan would include wills or trusts, a durable power of attorney for financial matters, a durable power of attorney for health care matters, as well as, an accompanying health care directive or living will. The simplicity or complexity of any plan depends, of course, upon one’s particular circumstances. However, no plan should seem overly complex when implemented with the assistance of trusted and competent legal counsel.

Will

A will is a legal document containing dispositive provisions which direct the distribution of one’s property upon death. A will may also contain provisions regarding the care and custody of minor children and the naming of a personal representative (executor) to coordinate the administration of one’s estate. A will may direct outright distributions of property to heirs or may provide for the establishment of a trust to hold and manage assets for heirs.

Power of Attorney

A power of attorney nominates an individual to assume responsibility for one’s affairs in the event of a subsequent incapacity. The individual nominated to manage one’s affairs and make health care decisions is called an attorney-in-fact. The powers bestowed upon an attorney-in-fact can be effective immediately, or upon subsequent disability as evidenced by a sworn physician’s statement.
Healthcare Directive (Living Will)- A health care directive or living will is simply a formal declaration, in writing, of one’s wishes regarding the types of life saving initiatives one would or would not want to be undertaken in the event of an incapacity. These wishes are to be recognized by all attending medical care providers and others making medical care decisions on one’s behalf.

Revocable Trust

A revocable trust is an estate planning tool most often touted as a means of managing assets in the event of incapacity, avoiding probate, maximizing available estate tax exemptions, and managing assets for the benefit of heirs. A revocable trust can be viewed as an extension of one’s self or as a small business wholly owned by an individual or couple. As the name implies, this type of trust is fully revocable and thus can be altered, amended, or otherwise disbanded by the Grantor/Settlor (owner) at any time.

A revocable trust can be funded with the assets of a single individual, or the joint assets of a husband and wife and can be utilized to manage many types of property including real property, vehicles, bank accounts, investment accounts, mineral and timber rights, and many more.
There are three important terms with which one contemplating the use of a trust should be familiar. The term “Grantor” or “Settlor” is used to describe the creator of a trust. The “Trustee” is charged with managing the property held in the trust. A “Beneficiary” receives the benefits of the assets held in trust.

In a typical revocable trust scenario, an individual or a husband and wife are nominated as the initial trustee(s) and beneficiary(s). A family member, surviving spouse, or corporate trustee (bank) often serves as successor trustee for the benefit of heirs and other beneficiaries. A trust can be terminated upon the death of a named party or parties, or other stated event.

It is important to note that trusts are very flexible estate planning tools, the terms of which are often only limited by the creator’s own imagination. If you or a loved one are contemplating the use of a trust based estate plan, please feel free to contact us for additional information so that you might determine if a trust is right for your planning needs.

Irrevocable Trust

Irrevocable Trusts are most often utilized to achieve specific tax related and asset protection objectives. Just as the name suggest, irrevocable trusts are generally a much more “permanent” type of estate planning too. Transfers of assets to irrevocable trusts are generally considered completed gifts for gift and estate tax purposes and thus the assets are no longer said to belong to the transferor. This fact may provide a level of asset protection for assets transferred to an irrevocable trust. Termination or modification of irrevocable trusts generally requires the consent of all named beneficiaries and/or possibly a court order.

Special Needs Trust

Special Needs Trust is a term often used interchangeably to different types of trust the principal purpose of which is to protect a beneficiary’s entitlement to various social benefits such as SSI, SSD, and Medicaid. Assets held in a Special Needs Trust or “Supplemental Needs Trust” can be used to supplement the benefits provided by a social benefits program and thereby enhance the quality of life for an individual receiving social benefits. A Special Needs Trust can be a stand alone document or can be incorporated into traditional estate planning tools such as wills and revocable living trusts in order to provide for continuing care of a disabled child, parent, or other beneficiary.

Charitable Trusts

Charitable trusts exist in several forms. Most recognized are the Charitable Remainder Trust and the Charitable Lead Trust.

Charitable Remainder Trust

A charitable remainder trust lets you convert highly appreciated securities or real estate into income for life or a term of years without incurring capital gains tax when the asset is sold. The appreciated asset is transferred into an irrevocable charitable remainder trust and is then sold by the trustee. The proceeds are reinvested, and you and/or another designated beneficiary(ies) receive income for life or a specified term of years. When the trust terminates, the remainder passes to a charity of the grantor’s (creator) choice.

There are two types of charitable remainder trusts:

1. Unitrust-
The income you receive is a set percentage of the value of the trust’s assets, which is revalued each year.

2. Annuity trust-
Income payments are fixed and determined when the trust is set up. The annuity trust is most attractive to individuals who wish to avoid market risk.

Charitable Lead Trust

A charitable lead trust is a “mirror image” of a charitable remainder trust. A lead trust pays the income to charitable beneficiaries for a term of years or for the trust makers’ lives, after which the remaining trust assets (principal plus any growth) pass to heirs or other non-charitable beneficiaries. If you have substantial assets that you want to pass to your children or other heirs and you do not need the asset or the income from that asset now, you may consider a charitable lead trust which will create current charitable income tax deductions. Charitable Lead Trusts can, like the remainder trust, be drafted as an annuity trust or a unitrust as described above.

Family Limited Partnerships (FLP’s) and Family Limited Liability Companies (FLLC’s)

FLP’s and FLLC’s are closely held businesses which are owned an managed by one or more family members. These entities offer numerous benefits to the small business owner when planning for disability or transfer of business ownership interests by gift or devise. FLP’s and FLLC’s can provide for the orderly transfer of management and ownership of a family business to successive generations and may offer significant advantages from a gift and estate tax perspective.

Beneficiary Deed

A revocable deed to real property that only becomes operative (effective) upon the death of the Grantor or Grantors.

Guardianship/ Conservatorship

Guardianship is the formalized, probate court administered process of appointing a fiduciary to oversee the care and custody, and possibly the finances, of an individual who has been declared incapacitated by the court. Guardians remain subject to the jurisdiction of the probate court for the duration of the Guardianship and are required to file annual reports with the court. A guardianship terminates when the ward regains capacity or upon death of the ward.
Conservatorship is the process for voluntary appointment of a fiduciary to manage the financial affairs of an individual who remains competent, but desires to relinquish the day-to-day management of financial matters. As with a guardianship, the conservator remains subject to the jurisdiction of the probate court and must file annual reports.

Probate

Probate is the formal process of gathering a decedent’s assets, paying creditors, and disposition of remaining assets in accordance with a decedent’s will or the laws of intestacy. Although thoughts of probate often conjure up negative perceptions, probate can be and often is a useful tool, when necessary. The probate process is set forth by state statute and is therefore subject to and administered by the probate court.
Many clients often express a desire to avoid probate. This can often be accomplished through the use of various estate planning tools such as revocable living trusts, beneficiary deeds, and the utilization of “payable on death” beneficiary designations.

Special needs planning entails financial and estate planning for a special needs individual, as well as estate planning for such individual’s parents or other family members desiring to provide for the special needs individual.

A “specialized” level of planning is necessary in order to assess the lifetime support needs of the individual and to protect the eligibility for social benefits such as SSI, Medicaid, etc.

The Oldham Law Firm, PLLC works with life care planners, geriatric care managers, and social benefit program coordinators in order to ensure the proper care and custody of the special needs individual, as well as, maximize the financial support options for such individual.

Guardianship is the formalized, probate court administered process of appointing a fiduciary to oversee the care and custody, and possibly the finances, of an individual who has been declared incapacitated by the court. Guardians remain subject to the jurisdiction of the probate court for the duration of the Guardianship and are required to file annual reports with the court. A guardianship terminates when the ward regains capacity or upon death of the ward.

Conservatorship is the process for voluntary appointment of a fiduciary to manage the financial affairs of an individual who remains competent, but desires to relinquish the day-to-day management of financial matters. As with a guardianship, the conservator remains subject to the jurisdiction of the probate court and must file annual reports.

Probate is the formal process of gathering a decedent’s assets, paying creditors, and disposition of remaining assets in accordance with a decedent’s will or the laws of intestacy. Although thoughts of probate often conjure up negative perceptions, probate can be and often is a useful tool, when necessary. The probate process is set forth by state statute and is therefore subject to and administered by the probate court.

Many clients often express a desire to avoid probate. This can often be accomplished through the use of various estate planning tools such as revocable living trusts, beneficiary deeds, and the utilization of “payable on death” beneficiary designations.

Elder law focuses on the legal needs of the elderly and encompasses a variety of legal tools and techniques to meet the long-term care, financial, and estate planning goals and objectives of the older client. Utilizing a holistic planning approach, the elder law attorney handles general estate planning issues and counsels with clients about planning for possible incapacity and long-term care needs. This includes subject matter such as wills and trusts, powers of attorney, healthcare directives, and guardianship/conservatorship. Elder law attorneys can assist in assessing the type of long-term care needs, locating the appropriate long-term care facility, coordinating private and public resources to finance the cost of care, and working to ensure the client’s right to and receipt of quality care.

Our Tax Services
Correct False Tax Returns
File Unfiled, Lost, Late Tax Returns
Survive IRS & State Tax Audits
Negotiate with IRS & States
Win State & Local Tax Disputes
Manage Payroll Tax Debts
Recover for CPA Malpractice
Prepare Income Tax Returns
Tax Attorney Tax Advice
Tax Court Litigation

Common IRS Tax Remedies
Lift Tax Lien or Bank/Wage Levy
Tax Payment Agreements
Offer in Compromise Negotiations
Eliminate Taxes in Bankruptcy
Remove Tax Penalty & Interest
Innocent Spouse Tax Relief
Obtain IRS Letter Ruling
Obtain IRS Documents & Records
Sue the IRS in Court

Frequently Asked Questions
What is the IRS?
How Can I Sue the IRS?
What Makes Up Tax Laws?
What is a Tax Lien?
What is an Estate Tax Lien?
What is a Tax Levy?
Can the IRS Seize my Property?
What is an IRS Summons?
What IRS Penalties are There?

Resources
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