Business Law

Business Agreements

• Limited Liability Companies & Family Limited Partnerships: A limited liability companies (LLC) is a blend of a corporation and a partnership that is governed by the California Corporations Code. A family limited partnership (FLP) is a limited partnership that is also governed by the California Corporations Code. Both LLCs and FLPs are used in estate planning to limit liability, maintain control, increase the efficiency of gifts to children and, for estate tax purposes, to reduce the value of assets that are subject to estate tax. LLC’s are more flexible than either FLPs or Subchapter S Corporations because of more membership flexibility (foreign nationals can be members of LLCs, but cannot be shareholders of S Corporations) and because of more flexibility concerning distribution of income and deductions (LLC income and deductions need not be distributed proportionally; FLP and S Corporation income and deductions must be distributed proportionally to partners and shareholders in accordance with their percentage ownership interests). Also, an LLC may elect to be a pass-through entity, which significantly reduces tax preparation costs. LLCs are particularly useful to limit liability arising from income producing properties, like rental units, which can create liabilities that are not covered by insurance.

• Business Succession Plans: Most (approximately 90%) of businesses are family owned or controlled. Approximately 30% pass successfully to the second generation, and approximately half that many pass successfully to the third generation. If you own a business, it should include a business succession plan. Any existing business succession plan should be reviewed, particularly if ownership transfer rights are limited by a Buy-Sell Agreement. Where the business is the separate property of one party, including pursuant to the provisions of a pre-nuptial agreement or a post-marital agreement, any estate plan must take that fact into account.

• Buy-Sell Agreements: When there are multiple co-owners of a business, those parties should have a written buy-sell agreement that will permit them to deal in an orderly manner with death, incapacity, divorce, retirement and other issues, and to control access to the trade secrets and confidential records of the business. Depending upon circumstances, buy-outs and retirement pay-outs can be funded with assets and earnings of the business or, in most cases, with insurance. Any buy-sell agreement should be coordinated with the provisions of a business succession plan and the individual estate plans of each owner to prevent chaos following the death, incapacity, divorce or retirement of one or more business co-owners.

Laing Law Offices