Philip M Hawes, Esq

Philip M Hawes
Attorney & Counselor

The process: planning, tools and technique . . . .

Family Business Interests

The Family Business. If you have a family business, you want to plan for what will happen with the business on your incapacity or after your death. How you plan depends greatly on the form of the business.

If you are operating as a sole proprietor, you should be aware that this is not the type of business “entity” that survives your death. In fact, by definition, it cannot continue when the proprietor is incapacitated. However, you may provide for your trustee or family member to take over the operation of the business with all of the business assets in place as of the time when you are no longer able to operate it yourself.

If you have a partnership, it is likely that your partnership agreement will have provisions that address what happens when a partner loses his or her capacity or dies. If you are a limited partner, your partnership agreement may give you more flexibility in allowing you to pass your interest to your family without first having to offer it for sale.

A business operated as a corporation is owned by its shareholders and operated by its officers and employees. Your shares can be passed along to your family like any other asset. However, operation of the business, where you were the primary person in charge, will require a plan for continued operation.

The subject of business entities also touches on the issue of asset protection planning.

Family LLCs. While keeping your assets “offshore” may seem exotic and appealing, it is greatly inconvenient, not without risk, expensive, and not really necessary in most situations. There are a variety of forms of operating a business, each having advantages and disadvantages. I have prepared a chart overview of these factors for your reference. (See sidebar.)

It is common these days to have your planner suggest using a Limited Liability Company format to isolate an asset from the rest of what you own so that liability arising in connection with the asset will not entitle the plaintiff to raid your personal assets to satisfy a judgment.

Many individuals and families who have or are acquiring rental real estate are taking advantage of the limited liability features afforded by the Corporations Code by owning and operating their rental under a limited liability company (“LLC”) format. These entities are attractive because they offer limited personal liability, like a regular C corporation, they are relatively easy to form and operate, and they afford pass-through taxation that avoids the double taxation imposed on C corporations. On the other hand, there are startup costs, State registration and reporting requirements, and an extra set of income tax returns to prepare each year (unless you have a one member LLC).
Here is a link to a review of the benefits of an LLC as the owner of your rental you have a one member LLC).

Here is a link to a review of the benefits of an LLC as the owner of your rental real estate . . . . (link)