Asset Protection & Business Planning

Lake Norman Asset Protection & Business Planning Attorney

Professional Guidance for Families in Cornelius & the Greater Charlotte Area

When you are starting a small business, there is a lot on your plate, and you are completely focused on gaining some traction. At the same time, it is important to build on a solid foundation when it comes to the business structure you utilize. That is where business owners and asset protection go hand-in-hand.

The Risks of Sole Proprietorship

It is easy to set up shop and conduct business under your name and Social Security number. The sole proprietorship option is straightforward, and your accounting is streamlined because you can claim profits and losses on your personal income tax returns.

At the same time, what happens if your business is the object of a lawsuit filed by a creditor or another plaintiff? The answer is that your personal property would be exposed to legal actions since there is no separation between your business and your personal affairs.

Limited Liability Company

A limited liability company (LLC) is a structure that is utilized by many small businesses to protect assets. Once you establish the LLC, there is a layer of separation between you as an individual and your business.

In most cases, your personal property would be protected if the business is sued, and vice versa. There are exceptions, but this is a solid asset protection solution for a small business, and there is another benefit.

The appealing tax situation you get with a sole proprietorship is still in place. Limited liability companies enjoy pass-through taxation, so you do not have to file a separate tax return for your business.

Family Limited Partnership

Another option is the family limited partnership (FLP), and as the name would suggest, the people that comprise the partnership are members of the same family. If you establish the FLP, you would be the general partner and the family members that you add would be limited partners.

Property that is held by the partnership would be protected if any member is sued personally, and the reverse is also true. For example, if you owned an apartment building and you conveyed it to a family limited partnership, the building would be protected if you were the target of a lawsuit.

In addition to the asset protection angle, a family limited partnership can facilitate transfers among partners at a transfer tax discount. This is a benefit that is largely useful for high-net-worth individuals.

Succession Strategies

You have to consider a succession strategy as well when you are operating a small business. If you have a partner, you can potentially use a buy-sell agreement to facilitate a smooth exit.

With the cross-purchase plan, each partner takes out a life insurance policy on every other. When one partner dies, the proceeds are used to purchase their share of the business from their estate at a previously agreed-upon price.

An agreement like this can be used for succession and is not related to an estate matter, and the funding does not necessarily have to come from life insurance.

This is just one possible scenario, but there are others. There is an ideal strategy to address any succession objective if you act in advance.

Let’s Get Started!

We can help if you would like to work with a Cornelius, North Carolina estate planning lawyer to put a plan in place. You can send us a message to request a consultation appointment, and we can be reached by phone at (704) 610-4276.

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