Actively protecting and preserving tangible and intangible assets is a specialty that several of our attorneys work tirelessly to perfect.  Whether you are looking for judgment protection, business succession, or just simply risk-averse, a very well-thought-out plan is the best defense to preserving those assets.  Tools to preserve those assets are available to you in the great state of Alabama and we do employ other measures with specific laws from other states that also aid in protecting assets.  Whether you are looking for simple measures, advanced judgment issues, desire to plan for business maneuvers or estate planning, Fortune and Beard is your choice to prepare and execute those plans.

Overview

The choices for organization of small and medium-sized businesses are sole proprietorship, general partnership, limited partnership, limited liability company (“LLC”), S corporation, and C corporation. Below are some commonly used entities. Please note that this is not an exhaustive overview and a consultation is needed to fully begin to understand the intricate nuances of the listed entities.

Sole Proprietorship

This is the default business form for an individual. If you operate a business by yourself without taking formal steps to organize a separate business entity, you are operating as a sole proprietorship. Your income tax return for this business is filed on Schedule C of your individual form 1040. Self-employment taxes (i.e., the employer and employee’s share of FICA taxes) are to be paid upon all earnings from a sole proprietorship in addition to standard income taxes. The operator of a business as a sole proprietorship is personally liable for any debts incurred by the proprietorship. If your business operates under a trade name (i.e., Joe’s Fish Market), you must make a fictitious name registration with the state secretary of state’s office but there will be no state franchise taxes due. Note: In California, the minimum annual franchise tax for corporations is $800 per year; however, most other states have annual franchise taxes under $100.

General Partnership 

A general partnership occurs whenever one or more personals or legal entities jointly operate a business together but fail to formally organize the business as a business entity. A general partnership may or may not have a written partnership agreement that spells out the rights and duties of the partners relative to partnership assets, liabilities, income (loss) and control of business operations. All general partners are jointly and severally liable for all partnership debts. “Jointly and severally” means that each partner can be held liable to 3rd parties for the entire partnership debt. Also, each partner has the potential to hold all partners liable for actions taken in connection with the business (note: there are limitations upon this hazard but one must be aware of the potential danger when operating as a partnership). Partnerships file a separate tax return (i.e., federal form 1041) and partners pay Social Security and Medicare on all partnership earnings.

Limited Partnership

A limited partnership is formed through the filing of a certificate of limited partnership with the appropriate state office for corporate filings (usually the secretary of state). In sole proprietorships and partnerships, the owners are all active participants in the operation of the business. In a limited partnership, we have two groups of owners: (a) the general partners who operate the business and are personally liable for partnership debts and (b) limited partners who may not participate in the operation of the business but are NOT liable for partnership debts. Limited partners are, thus, passive investors in the business. The general partners pay Self-Employment tax on all partnership earnings whereas the limited partners do not. All limited partnerships are required by state law to have written partnership agreements.

Limited Liability Company

An LLC is also formed through the filing of articles of organization with the appropriate state office for corporate filings (usually the secretary of state). An LLC is a hybrid between a partnership and corporation. Generally, LLCs are required by state law to have written operating agreements that set forth the rights and duties of the LLC members much like a partnership agreement. Although an LLC can be organized with non-member managers operating the business, the IRS has ruled that in most cases LLC members shall be liable for self-employment taxes on their share of LLC earnings. An LLC reports its income (loss) on federal form 1041 and LLC members are not personally liable for the debt of an LLC.

Corporations

A corporation is formed through the filing of articles of incorporation with the state. There is no distinction between an S and C corporation when the initial filing of articles of incorporation are made with the state. To become an S corporation, a corporation must file Form 2553 with the IRS within a certain deadline to qualify for S status. If you fail to make a timely S-corporation election, the corporation is automatically a C corporation. S corporations are taxed on income (and losses) like partnerships in that there is no entity level taxation whereas corporations have their income taxed at the corporate level. Please note that S corporations that formerly were C corporations can be taxed upon “built-in gains” that existed upon their conversion from C to S. Shareholders are not personally liable for the debts of either C or S corporations. In regard to employment and unemployment taxes, S and C corporations are treated alike: employment taxes are only paid upon the designated salary of a shareholder and not upon dividends.

Overview

Estate and Trust Planning are important tools that you can utilize to prepare your estate for distribution in the event of your death while making the transition easier on your loved ones. You have several options when deciding how to plan for the future. Some of the ways that we can facilitate your needs are by creating and/or preparing a:

• Will
• Living Will
• Living Trust
• Durable Power of Attorney
• Health Care Proxy
• Business Succession Plan

You might be asking yourself, “Why is estate planning so important?” The importance is that a comprehensive estate plan can cover everything from asset distribution to health care decisions relieving your loved ones from making those tough decisions during that difficult time.
Wills, Trusts, a Durable Power of Attorney, and a Business Succession Plan are just a few ways to protect your assets and facilitate an orderly distribution. An orderly distribution can eliminate family disputes over your assets ensuring a smooth transition during the grieving period. A Health Care Proxy is another important document that will direct an appointed person to make medical decisions on your behalf should you become incapacitated. Having a health care proxy alleviates the stress and grief on your loved ones from having to make difficult medical decisions.
At the law firm of Fortune, Beard, Arnold, Graham, & Arnold, LLP. we understand the sensitive nature of the Estate Planning process, and we are here to answer all of your questions in order to ensure an easy and stress-free estate planning process.