This is a broad orientation to business law. Every case has its individual facts.

This is not legal advice, we don’t have an attorney-client relationship.

You’re an entrepreneur, or you and some friends decide to go into business together.  How do you decide on a corporate form:

What do you do that you will get paid for?

Sell bagels & coffee? You’re a jazz piano player? You will manufacture gold-plated widgets? Are you a budding freelance strategy consultant…who plans to build a big firm? Auto body shop? Dog walking?

How do you best organize to execute on that idea?

Just you? Need a trained, cohesive set of employees? Loose, informal agreements with backup musicians and club owners? A large network of business contacts — even international? Continual training of high-turnover 1099 service workers?

What scale and type of financing do you need?

A loan? Maybe your student loans financed the knowledge you are selling? Equity investors? A large scale of financing?

Other Factors to answer with corporate forms:

-Level of personal liability to individual executives?

-Method and level of taxation?

-Control vs. Accountability

-The Keystone Asset

-Ease of Exit

Types of Business forms

Sole Proprietorship

It’s all yours and all on you. Taxed on your personal 1040. All legal liability is on you, and you reap all profits and answer to no one.

Partnership 

A multi-headed sole proprietorship. Easy to fall into without paperwork. Joint and several liability, meaning each is accountable for torts and contract breaches done by the other if related to your business. Beware

partners who are much richer or much poorer.

Need an Operating Agreement, a business pre-nup. May be

polygamous.

You need to do a background check on all partners, and take out insurance on each other in case of death.

C Corp

Best for $caling. Must manage the company and the board. Lots of

overhead. Shareholders pay tax after the corporation itself has been taxed.

Investors often want you incorporated in Delaware for consistency.

S Corp

Pass thru taxation, up to 100 Shareholders. (married couples account as 1)

Benefit Corporation

Recognized in some states but not the IRS or SEC as anything special. Has a social mission which is commercialized. All it really is, is a shield against shareholder lawsuits to the board or officers for not making enough profit. Largely about marketing.

“B corp” is a certification from the B Lab organization that you meet

certain standards.

LLP

Limited Liability Partnership. Becoming rare.

A managing partner with control and a fee, and investors (limited liability partners) with no

control.

LLC Limited Liability Corporation. 

Catchall, and very popular.

Many of the aforementioned formats can be LLCs now. If solo, then

taxed as an individual. In more than one owner, then prepare a

separate Income Statement for IRS.

Very flexible.

For business owners, business succession is part and parcel with estate planning.

Business Succession

Plan an exit strategy, even if you don’t plan to do it.

Have succession plans if you die or are incapacitated.

Your estate documents and martial agreements should be in synch with your

operating agreement/term sheet/contracts.

Marriage is the biggest business deal of your life.

Answer all of these questions for yourself before speaking to a business partners, a lawyer, financial planner, accountant, or consultant.

Estate Planning for Business Owners

No estate is the same.

No Business is the same.

No Family structure is the same.

Relationships are each unique.

Everyone’s agendas is unique.

First, your balance sheet:

If you had no estate plan, and you got run over by a truck:

What are your assets?

-What would the business be valued at?

-Your house(s)

-Would the business continue or be sold? To whom?

-What income and property taxes are owed?

-What debts are owed?

Write that down!

Second: the People

Methodically, one-by-one, describe the agenda of each family

member and the relations among each of them. Grandkids come.

Marriages end in death or divorce, and there is often a remarriage.

Heir                                                                             Personal Agenda 

Repeat for all business partners, employees, investors, and business

associates.

Associate                                Business Agenda

Not everyone wants — or is capable of — functioning in the business.

Especially in licensed professions.

Third: the Stuff

Think 2-5 years down the road about your business:

-Will it need capital, training, expansion, layoffs?

-Changing industry?

-Pivot to new products?

Think about all family assets:

-Will the beach house need remodeling, or merely a new roof

-Jewelry, bank accounts, securities?

-Is your interest in other businesses active or passive?

-Which assets will endure, and which can be divided/liquidated?

Fourth: Stuff to the People

Take the previous two slides, and game out as many scenarios as you

can.

Calculate the math from all of those scenarios.

The main point of estate planning is allocating specific stuff to specific

people as YOU want.

Hint, equal does not mean equitable.

Fifth: the Hard Part

Compare the initial number of dying intestate, with all of the new numbers.

-Optimal tax strategy may harm family relations.

-Optimal family control of a business may inhibit long term capitalization.

-Financial support for a widow may harm relationships with business

associates, and thus the business itself.

-Closing down or selling the business.

What do YOU value the most?

BASIC TOOLS

Wills- Set out what you want (your will to be done). Generally best for assets that are divisible and liquid. Goes through a slow, public Probate Court.

Trusts- Many types. A new entity, entrusted to an trustee to benefit heirs and assigns like charities. Since the property is already retitled, it goes to whom it needs to without going through Probate. Best for assets and amounts of money that will endure.

Hint: No business owner wants anyone to have any idea about their assets and debts, since that’s your leverage in negotiations. There is a premium on privacy.

Pre/Postnuptial Agreements- Contracts with a spouse about assets if there is a

divorce.

Life Insurance- Premiums are paid in life for a payout at death. Whole or Term.

Bequests- Certain accounts can have named beneficiaries.

Now then,…

You have a strategy.

The lawyer, insurance brokerer, and financial planner will offer their most

expensive services.

This will be based on the tax brackets at the time. Estate plans should change

with changing tax laws, changing business conditions, and changes to your

family.

Now you have a plan of where you want to go, and those interactions will be

faster and cheaper.

Lastly,….

Explain WHY to family. Then to business associates.

Coming from you, it will save on jealousy-driven litigation. And

preserve relationships.

 Can I just start doing business without forming anything official? — Yes, as long as you don’t violate regulations, you'll automatically be a sole proprietor. Which again,  means unlimited personal liability from day one. The key is to keep excellent books (mileage logs, receipts etc.)

 If I form an LLC, am I fully protected from personal lawsuits? — Not automatically. Courts can pierce the corporate veil if you commingle personal and business finances. See above, keep good books.

 What does "pass-through taxation" mean for my paycheck? — The business itself pays no income tax; profits flow to your personal return. This allows the business to capitalize. But you may still owe self-employment taxes. 

 My co-founder and I have a handshake deal. Is that enough? — Quite possibly.  You are responsible for any torts they commit. 

 When do I actually need to incorporate in Delaware? — Mostly when raising venture capital, or plan to raise a lot of capital. For a local small business, Delaware adds cost without much benefit. 

 What happens to my business if I die with no plan? — A sole proprietorship dissolves. A partnership may dissolve or be contested. An LLC or corporation can continue — if your operating agreement says so. Your estate will pay taxes.

 My spouse helps in the business but isn't an owner on paper. Does that matter? — Very much. In community property states they may have a claim regardless. And in a divorce, the business will be valued and is on the table. Prenups and postnups really matter.

 What's the difference between a will and a trust for my business interest? — A will goes through probate — public, slow, contestable. A trust transfers ownership privately and immediately, which matters when a business needs continuity. Again no business wants its books made public.

 Can I change my business structure later? — Yes, but conversions can trigger tax events and complicate investor relationships. Better to choose thoughtfully at the start.