Doing business is an activity. If you own a business, or are set to inherit a business, it is vital to know that you can continue to do business. Either way, remember to determine whether the business “structure” itself is the most appropriate.
Fortunately, a recent Forbes article helps clarify the distinction in an article titled “Key Facts About Corporations, S Elections & Buy-Sell Agreements.” If nothing else, it might dissuade you from creating a “corporation” at all.
Essentially, a corporation is always a corporation, but they do come in two basic flavors depending on how you will be taxed. With an S corporation, the corporation will be “disregarded” and your personal profits from it will be taxed to you personally. On the other hand, a C corporation (generally larger in size) will be taxed as a separate entity all on its own before and in addition to any tax paid by owners.
When you are doing business, taxation is clearly important (you hope to make some money, no?). However, when you are planning for the future and longevity of the business the corporate "form" is no less important. Perhaps some different business structures are worth considering. For example, you might jump for the newer, stylish and (maybe) more agile LLC or Limited Liability Company.
If you have a corporation, then make sure you have a buy-sell agreement. The buy-sell agreement allows shareholders to agree how their shares will pass if one or more of them become disabled, retire or die. The failure to make proper succession plans through a buy-sell agreement can even threaten the tax structure, after all, never mind the health and longevity of the business in all regards.
Do you have a plan for how ownership of the business should transition in Overland Park or elsewhere?
These are a few key facts worth knowing, and if you own or may soon inherit a business, then there is much to learn about business ownership and business structure. There are many more key facts to know, and maybe there is work that should by done posthaste to restructure the business itself.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Forbes (March 18, 2014) “Key Facts About Corporations, S Elections & Buy-Sell Agreements”