Owning a business takes time, dedication and a lot of hard work. For small business owners, their business plays a huge role in their daily life. That being said, it is important to insulate personal assets from debts incurred by the business. In order to do so, business owners should first choose the type of entity that fits them personally and professionally. Common choices for business entities include LLCs, PLLCs, Corporations, P.Cs. and Not for Profit Organizations. Choosing a type of business entity is an important decision that can have both tax and asset protection implications. When choosing an entity, business owners would do well to consult both a lawyer and an accountant before committing to a type of entity.
Forming your entity
Once a small business owner has decided on an entity, it is time to form that entity with the state. This involves filing the appropriate documentation with the Secretary of State’s Office. Small business owners should also have a corporate book in which the stock certificates or unit certificates (in the case of an LLC) and other records of the business are filed. Finally, it is important to have by-laws or an operating agreement (in the case of an LLC) that formally outline the day to day policies and procedures of the entity and confirms who is authorized to act on its behalf.
Maintaining your entity
Once an entity is formed, small business owners must maintain their entity every year. Annual maintenance includes filing with the Secretary of State’s office, conducting an annual meeting and documenting the substance of that meeting in annual minutes. Annual maintenance is extremely important and is necessary in order to reap the asset protection benefits the business entity affords the business owner.
Business owners are not immortal, and just like individuals who work for other companies, they do intend to retire someday. A small business owner, whether nearing retirement age or not, should consider succession planning and what would happen if he or she were to voluntarily or involuntarily (due to death or incapacity) no longer be involved with the business. Often, a formal agreement is appropriate to outline what would happen upon both voluntary and involuntary lifetime transfers of ownership interests. These agreements are commonly referred to as buy-sell agreements or redemption agreements.
Durbin & Veglia assists clients with Estate Planning, Wills, Trusts, Special Needs Planning, Asset Protection, Elder Law, Medicaid Planning, Probate & Estate Administration and Real Estate throughout Worcester County and the Metro West Area.