Posted on

Hey Buddy? Questions to Ask Before Going Into Business With a Friend

It’s exciting to think about the prospect of going into business with someone you already know, but this step should be taken carefully or you might wind up with a difficult working relationship and an impaired friendship. Here are some of the most important questions you should review when thinking about whether a friend equals an ideal business partner.

Hey Buddy Questions to Ask Before Going Into Business With a Friend
(Photo Credit: vanityfair.com)

  • How much trust do I have for this person? You’ll see that numerous experts compare business relationships with marriage. Are you willing to go through ups and downs, which are all part of running a business, alongside this individual?
  • How does that partner improve and build on your brand?
  • Does this person have a selling point or critical skill that you’re missing? It can be a good idea to work with someone who offers something that you don’t. If you’re missing executive experience, for example, perhaps look for someone who offers that.
  • What is their life position? It could be difficult to work with someone as a partner who is not in a stable life location. Although this doesn’t meant that your partner has to have all his or her ducks in a row, someone just coming out of a bankruptcy might pose risks for your company.
  • Would a pilot project work? Before committing to a full-on business together, maybe trying out a small version or pilot project will give you a sense of your strengths and weaknesses.

To talk more about concerns of a business at the startup stage, contact us through email at info@lawesq.net or by phone at 732-521-9455 to get started.

Posted on

Buy-Sell Agreement Checklist

How do you know that your agreement is crafted properly? There are a few clues that should give you the peace of mind for what happens in a variety of events. Here’s what should be included in a basic buy-sell.

Your agreement should include a minimum list of events that can “activate” the trigger for remaining owners to purchase interests of a shareholder that’s departing. These include incapacity, bankruptcy, professional license loss, death, disability, retirement, and failure to carry out duties properly.

Buy-Sell Agreement Checklist
(Photo Credit: binkd.com)

Every agreement should also have explicit provisions for the payment of the departing owner’s interests. Some of the most common ways to do this include life insurance, cash from borrowings at the purchase date, a sinking fund, or an installment sale based on current business earnings.

Speaking of payment, the agreement should outline how the price of the departing individual’s interest is calculated. Some of the most common methods for addressing this are book value, appraisal, replacement cost of any hard assets, an annual earnings multiple, or an annually agreed upon amount.

Finally, think about family concerns, such as whether those individuals will have access to liquid resources to replace you, mechanisms for fair treatment of family in the event of your sudden death, or even plans for what will happen if your share will not be carried on by family members. All of these considerations can be addressed in a comprehensive business succession plan. Begin today with an email to info@lawesq.net or contact us via phone at 732-521-9455.

Posted on

Tax and Structure Considerations for Buy-Sell Agreements

A buy-sell agreement needs to be written properly in order to ensure that it’s effective for invested parties. There are some specific aspects that should be considered in the planning of any buy-sell agreement. Here are some of the basic stipulations:

Tax and Structure Considerations for Buy-Sell Agreements
(Photo Credit: yoursmartmoneymoves.com)

  • The commitment of involved parties. The obligations of each party should be outlined clearly, leaving no room for questions
  • The purpose of the arrangement should also be specified
  • A formula explaining the purchase price of the business interest should also be included, like a value for the selling/buying price for the business. Furthermore, how this should be funded is also explained.
  • Any transfer restrictions should also be included, which can prevent the owners from transferring interest in the business while any other parties to the agreement are still alive.

Bear in mind that there are tax considerations for funding a buy-sell agreement with life insurance, such as:

  • Premiums used to fund the agreement are generally not tax deductible
  • There’s no gift tax that happens on the buy-sell agreement execution
  • In a cross purchase agreement, the cash value of the policies that are owned by the decedent can be factored into the decedent’s estate.
  • Death proceeds are paid out income-tax free, no matter who actually owns the policy.

If you’re planning on structuring such an agreement, you might use an entity purchase agreement, a cross purchase agreement, or a hybrid agreement. To learn what will work best in your situation, send us an email at info@lawesq.net or contact us via phone at 732-521-9455.

Posted on

For Hoteliers: Hotel Business Protection Using Captive Insurance

For hotel business owners, there are big benefits to setting up a captive insurance company. This can be a valuable way to protect your company and save money at the same time, since captive insurance companies are known for tax flexibility. A captive insurance company is an affiliate of a business that is created to reinsure particular risks of that business. The captive can be formed in the U.S. or in a foreign jurisdiction. Policies can contain all of the basic terms that are included in commercial insurance contracts and premiums are determined by independent actuaries.

For Hoteliers Hotel Business Protection Using Captive Insurance
(Photo Credit: gamasutra.com)

The goal of a captive is to help pick up the risk that has already been held by a business that “self-insured”. This means that the business has some kind of specific need for which it is too expensive or impossible to get typical insurance. In this case, the captive serves a very important role of improving the risk protection capability for the business. Some examples include earthquake coverage, food-borne illness concerns, or cyber theft.

Surplus that is not used to pay out claims can be distributed out to shareholders as dividends. Control over this captive also gives the client investment control over the assets with the captive in certain situations. Captive insurance companies benefit from special tax treatment under the Internal Revenue Code. As a result of all these benefits, business owners for thousands of companies have been able to accumulate a great deal of pre-tax wealth through captive insurance companies. Hotel owners take note: you should consider how a captive insurance company suits your needs and helps you insure specialized risk. To get started, contact us at 732-521-9455 or email us at info@lawesq.net

Posted on

Risky Business? Manage that Risk: Captive Insurance Companies

A captive insurance company is a company created by a business owner to help insure risks of affiliated businesses. When set up appropriately, a captive allows a business to manage risks while allowing the affiliated company to reap benefits, too.

Risky Business Manage that Risk Captive Insurance Companies
(Photo Credit: business2community.com)

A Captive will receive premiums that are then invested as opposed to premiums sent to a traditional unrelated insurer, which are essentially “lost”. Over time, those premiums accumulate. In the event of a risk loss, the premiums are available to be paid for those self-insured losses, thus protecting the business’s bottom line. This crucial benefit is the biggest advantage for business owners.

A Captive can issue casualty or property insurance to protect against a broad array of risks. Where the business owner has the most potential to capitalize on this opportunity is through risk protection for those risks that are typically too expensive to coverage or uninsurable, period. With possible major tax increases coming in the future, the Captive Insurance company remains situated as one of the most effective solutions for business owners. Captive Insurance benefits go beyond tax advantages by providing business owners with opportunities in wealth transfer, estate planning, and asset protection, too.

At Shah and Associates, we work with you individually to determine how a Captive can best suit your business needs. With vast experience in the field, we have helped our clients use Captives to minimize taxes, protect assets, manage risks, and improve cash flow. We understand the peace of mind and confidence that comes from a comprehensive approach to risk management, and that’s why we remain committed to the business community.

Posted on

The Business Owner’s Parachute: Get Your Exit Plan Ready

While “now” is always the time you should start getting your exit plan ready for your business, there are some guidelines about specific year marks that you should use to think about what will happen next. Here is the best advice for exit plans.

theretiredaffiliate.com
(Photo Credit: theretiredaffiliate.com)

Starting ten years in advance is the best way to maximize opportunities. This is because at this marker, you can start really considering whether the business is intended as a family legacy. If a family member will be taking over the business, the ten year period is a great planning point for incorporating those family members into training and education. Ultimately, this will make the transition period much smoother. Saving taxes is another primary concern at this stage. If a business owner has recently converted the company from C Corp to S Corp filing status, you should wait a minimum of ten years before selling the company.

Five years out is a good place to review because you are a little closer to the finish line here. Cash flow, tax deduction, and tax leverage should all be explored with your planning specialist at this time. Changes regarding cash flow can allow for a strategy in which cash flow to the owner is a focus rather than company growth.

Finally, even one year out provides planning opportunities. For example, we have implemented strategies which could save the Seller the entire [9% – 13%] tax some states collect upon the sale of a business. If the company will be sold, the owner should identify a business broker or investment banker to actually put the business on the market. This gives enough time for a due diligence review, drafting the sales agreement, and delays related to regulatory issues. No matter what stage you’re at, you need to put some planning tactics in place for your exit plan. Contact us today at 732-521-9455 or email info@lawesq.net to get started with your personalized plan.

Posted on

Put It In Inc.: Using Corporate Formation to Shield Assets

Without the proper protection, a single claim against a person’s business can cause financial ruin for the owner. Importantly, a person’s business extends to more activities than you may think. If you have a partnership, small business, or even a hobby that earns you money, consider following the asset protection strategies offered in this recent article.

First, if you have a partnership, consider incorporating it. As the article explains, “business partnerships are ticking time bombs.” This is because a partnership is akin to a joint account, in that actions taken independently by your partner may affect you as well.

If your partner faces a personal liability lawsuit, the plaintiff could seek to collect against all of your assets as well. Conversely, the owners and managers of other business forms such as LLCs and corporations do not face personal liability for claims against the entity or each other.

Similarly, if you have a small business, hobby, or part time job for which you are self-employed, consider incorporating that as well. Again, the incorporation will shield the business assets from claims against you personally. It will also shield you personally from claims made against your business.

Posted on

Circle of Life: Live Events That Affect Your Asset Protection

Asset protection planning does not happen all at once. Rather, an individual’s or family’s asset protection strategies should grow and evolve with them. A recent article discusses several life events that should prompt an individual or family to revisit their asset protection strategies.

  1. A Run-In With The Law: As wealth advisory manager Heather J. Swob explains, “If you’re in a potential liability situation, the advisor should be kept aware. While there are look-back provisions that might keep you from moving assets, the advisor can still provide some valuable advice.”  In addition to advice, it may not be too late to plan.
  2. Engaging in a Business Transaction:  Business owners and investors get sued.  Whether it’s a Partnership dispute, a lender’s claim, an employee lawsuit or some other claim, it’s wise to protect your assets before the onset of such a liability.
  3. A Struggle With Addiction: Although it may be embarrassing or difficult to discuss that you or a family member is struggling with addiction, it is important for your advisor to know what to look out for. According to Swob, “estate documents should be reviewed to keep assets out of the [addicted family member’s] control in the event of a sudden death.”
  4. You Are Experiencing Dementia or Other Deterioration of Mental Condition: If you are experiencing the early stages of dementia or other mental illness, time is of the essence. Once your mental capacity is affected, you may no longer be able to sign off on important documents that you have been putting off, such as a financial power of attorney.
Posted on

Minding Mom & Pop’s Shop: Five Steps to the Succession of Your Family Business

Succession planning for a family business is often no easy task. Recently, an article in Forbes outlined the five necessary steps for a viable succession plan. The five steps include:

English: Demise of a family business? Coulson ...
(Photo credit: Wikipedia)
  1. Planning for the general transition of the business: The article notes that only one third of family businesses successfully make this transition.
  2. Creating a plan that aligns the family interests: This is important because the succession of a business must serve many family goals. Not only must it pass the business on to the next generation, but it must also provide a retirement income for the current owners.
  3. Creating a buyout agreement that balances financial returns: Often it is difficult to value a family business. While the retiring owner may look to the balance sheets for the value, the real value of the business is often based on a model of earnings capitalization.
  4. Creating a succession plan that quells any potential interfamily disputes: Often, interfamily disputes can spell the end of a family business. These disputes are most typical where the interests of all family members are not aligned. Pay particular attention when there is a divorce or death that leaves a non-involved family member stock.
  5. Avoid potential estate and inheritance issues, such as tax and probate delays that may hold up the succession of the business.  
Posted on

The Difference Between an LLP and LLC

In order to transfer assets to the next generation, some people may choose to use an LLP or LLC. Both of these are legal business arrangements that can be implemented into any estate plan.  A recent article discussed the differences between the two.

An LLP, or limited liability partnership, is a general partnership. In this type of partnership, ownership of the business is split between the partners. Profits from the business are distributed based upon the percentage ownership of each owner. An LLC, or limited liability company, is a partnership wherein owners are issued shares of stock. Profits from the business are split between the owners based on their share of the stock.

The use of an LLC or LLP may be beneficial for those Americans who have estates valued above the federal estate tax exemption, are seeking asset protection, or both. This is because these devices lower the value of the entire estate by dividing ownership of the business between yourself and your children. Moreover, if you gift a portion of your LLC or LLP to a child, that gift can be discounted by 20 percent or more for purposes of the federal gift tax exemption. By giving such gifts, you increase the value of your allowed $14,000 gift by 20 percent.

Posted on

When the Conference Table Meets the Family Dinner Table

Often, succession plans for family businesses only consider the technical aspects of the business. However, it is just as important to consider the softer sides of the business. A recent article discussed the importance of creating a succession plan that considers the technical, as well as soft aspects of a family business.

When engaged in succession planning, most family business owners focus on the technical elements of business planning. This is important, as business transfers carry significant tax and legal implications. However, the technical elements of the transfer should not be the business owner’s sole concern. Business owners need to also consider the “qualitative aspects of leadership, communication, and control over decision making.”

One business owner set his company up for failure when he ignored these considerations when he passed his company evenly on to his five sons. The owner left no outline for a decision making structure between the sons. The business quickly fell apart, as the sons had no clear sense of direction and engaged in a power struggle.

In order to plan for the softer side of a business transfer, it is important to create a plan that will manage family relationships. Through this type of plan, the business owner can dictate a decision making structure for his or her successor children to follow. Such a plan can help avert disaster when successor children disagree about leadership and direction.

Posted on

Contingency Planning For Your Business

As the economy tip-toes back in the right correction, businesses must still be sure to implement contingency plans in the event of another economic recession. As a recent article in Forbes explains, a recession can cause a business not only sales and profits, but time as well.

The first step of contingency planning is to make a list of the major decision-making areas that will be subject to short-run change during any recession. Although all companies are different and will therefore create different lists, some areas that most companies will include are prices and terms, labor, materials and inventory, capital spending, and financing.

The next step in contingency planning is to create plans for each decision-making area for mild, moderate, and extreme economic downturn. In the area of prices and terms, for example, it is often wise to tighten credit terms during a mild recession. Although sales representatives may wish to offer eased credit terms to consumers during harsh economic times, it is important to ensure that your accounts payable do not turn into write-offs.

In a moderate recession, it may be necessary to lay off workers and cancel expensive projects. If the economic situation becomes extreme, your company must enter survival mode. In this final category, it is most important that the company survives. Often, extreme measures are necessary.

The advantage of having three levels of contingency plans in place is that, should there be an economic downturn, you will be able to act quickly to reduce losses.

Enhanced by Zemanta
Posted on

Equalizing Inheritance for Your Children

When one estate planner hears his business-owning clients say, “I love my kids equally, so I want to share my assets equally,” what he actually hears is, “I don’t know how to handle this, so when I’m gone, I’ll leave the business to the kids and let them sort it all out.”

The article in Forbes goes on to state that clients who truly want their business to continue to grow and thrive after their death, but also want their children to succeed in whatever career path they have chosen, should speak with an estate planning attorney about logically equalizing their children’s inheritance.

One potential method of inheritance equalization is through life insurance. Using this strategy, one can set up their estate plan so that, upon their death the children who would like to take an active role in the family business inherit your stock in the business, while those children who have chosen another career path receive monetary inheritance equivalent to the value of the stock through life insurance death benefits and other non-business assets you hold at the time of death.

Through inheritance equalization, parents can create equal and equitable transfers to the next generation.

 

Enhanced by Zemanta
Posted on

Estate Planning Tips for Female Entrepreneurs

For female entrepreneurs who juggle running a business as well as a family, it is often hard to find time to create an estate plan. However, as an article in Forbes discusses, not creating or updating an estate plan may create undesirable consequences for a female entrepreneur’s family after she passes.

The article suggests that female entrepreneurs take three simple steps to avoid leaving chaos for their families and business partners. Moreover, even if the female is responsible for managing the business and household finances, it is vital for her to make sure that her spouse — if any — has a working understanding of the finances.

One key area to focus on is ensuring that your business assets travel in the right direction. While many owners would like their ownership interest in the company to pass to their business partners, the laws of intestate succession  — which dictate disposition of your assets if you die without a will — will most often pass your share to your spouse or children. One way to avoid this is to put in place a buy/sell agreement. Such agreements provide instructions for how shares will be sold or distributed if a partner dies or otherwise disposes of his shares.

It is also important to assemble and make sure that you and your family are familiar with your team of advisors, and to put mechanisms in place to protect your family assets.

Posted on

Exit-Planning for Business Co-Owners

Many times, the last thing entrepreneurs consider in the process of starting a new business venture is how they will handle the departure, on good terms or otherwise, of a co-owner. As a recent article explains, it is never too soon to begin crafting an exit plan.

By its very nature, co-ownership of a business by its founding individuals cannot last forever. Consequently, the article suggests that co-owners need to address and have an action plan for three important questions:

  1. When will a co-owner have an option or obligation to sell or otherwise divest himself of his ownership interest?
  2. In situations where an ownership interest will be sold, how will the co-owners determine an appropriate purchase price?
  3. After an appropriate purchase price is determined in sale situations, where will the money to pay it come from?

“Trigger events” are events that lead to the option or obligation to sell an ownership interest in a business. Some of the more common trigger events occur when a co-owner dies or becomes disabled, or terminates his employment with the business. Although planning for these decisions may involve difficult or uncomfortable discussions, wise co-owners will maintain and update a well-documented exit plan.

Posted on

Protecting Your Clients From Sales & Use Tax Liability

NOTE: THIS ARTICLE WAS CO-AUTHORED BY 
CHIRAG N. PATEL, ESQ. , SENIOR ASSOCIATE WITH SHAH & ASSOCIATES, P.C. 

Whether our clients are purchasing an existing business under a newly formed entity (corporation, LLC or other) or are purchasing the ownership interests (Stock or Membership units) of an existing company, both parties to a contract are typically eager to Close the transaction on the anticipated settlement date after all remaining contract contingencies have been satisfied. Among the myriad of liabilities from which we need to protect our Buyer-client is that of back owed Sales & Use taxes.

How can we protect our Buyer-client from liabilities arising out of the Seller’s failure to pay sufficient sales & use taxes? 

The answer is by filing a timely Bulk Sales notification with the State of New Jersey Division of Taxation. Per the New Jersey Bulk Sales Act, the Division of Taxation requires that when a business is being sold or dissolved, the Bulk Sales Section must be notified and given the opportunity to determine whether any taxes are due and owing to the State. Recently, the State of New Jersey has made clear that they intend the statute to apply not only to transfers of business assets, but also to the sale of real estate if the real estate is the principal asset of the seller or if the primary purpose of the real estate is to support a business. The statute also applies to any transfer, regardless of the consideration or dollar amount. This means that even if the transfer is for no consideration, the Buyer and Seller must comply with the State mandated bulk sale notification procedures.

What are the steps for gaining protection? 

To protect the Buyer from unknowingly assuming the Seller’s tax liability, adhering to the following Bulk Sale Transfer Notice Requirements is imperative prior to, on the day of, and after Closing:

1. The Seller, with the assistance of the Seller’s accountant, must prepare and deliver to the Buyer the Asset Transfer Tax Declaration, which will assist the State in determining the estimated tax on the gain from the transfer of assets.
2. The Buyer, with the assistance of the Buyer’s attorney, must prepare a Notification of Sale, Transfer or Assignment in Bulk, which, along with a copy of the fully executed Contract, will be forwarded to the Division of Taxation at least ten (10) days prior to Closing.
3. Within ten (10) days following receipt of the documents, the Division of Taxation will notify the Buyer’s attorney of any possible claim for state taxes and specify the amount to be held from the Seller’s proceeds and escrowed by the Buyer’s attorney on the day of Closing. This amount may include any underpayments to the State, unfiled returns and any fixed or pending audit assessments. In the event no taxes are owed to the State, the Division of Taxation will issue a Letter of Clearance.
4. After Closing, any amounts owed to the State will be paid out of the escrow account. Once all state taxes have been paid, the Division of Taxation will authorize the release of the remaining funds in escrow to the Seller by issuing a Letter of Clearance.

What are the ramifications of not complying with the Notice requirement? 

The statute containing these requirements, N.J.S.A. 54:32B-22(c), provides that if the State is not notified of the transfer, in addition to being subject to the liabilities and remedies imposed under the provisions of the uniform commercial code, Title 12A of the Revised Statutes of New Jersey, the Buyer “shall be PERSONALLY liable for the payment to the State of any such taxes theretofore or thereafter determined to be due to the State from the seller, transferor or assignor, and such liability may be assessed and enforced in the same manner as the liability for tax under this act.” Conclusion Prior to accepting the transfer of any business assets or real estate, the Buyer and Seller should confirm with their respective attorneys that all the above requirements are applicable and satisfied, so that no unexpected liabilities result from the transfer.

(Note that New York & Pennsylvania, states in which we maintain active practices, have similar means of protections, but are procedurally different.)

Posted on

What do you need to address for your family?

Your goal may be making sure your children & spouse are financially secure and to protect your assets from those who may ‘attack’ them. Perhaps you want to ensure your property and business is secure in the event of the following: death, divorce, a partner developing a debilitating disability and/or creditor’s attacks. Or it may be as simple as naming a guardian for your minor children. Most probably, your goals and needs are a combination of the above, plus other circumstances unique to you.

There’s no such thing as a ‘one-size-fits-all’ estate plan or a ‘cookie-cutter’ simple will. Different goals and unique circumstances requirepersonal attention and customized plans. Here are examples of client estate planning needs we’ve addressed in the recent past:

• An IT Professional and his business partner needed a comprehensive Buy-Sell agreement which ensured that in the event of either of their untimely deaths, the business can continue to run, but the deceased partner’s family would be paid a fair market value for his share of the business. As you can see both the family and the business needs are addressed.

• A married couple with substantial real estate investmentswanted to ensure that their personal home and assets wouldn’t be lost to a tenant, a lender or other litigant who sues them as a result of liabilities arising from their investments. We were able to implement an Asset Protection Plan which shields their family assets from liabilities than can arise from their investments. Most importantly, they also named a Guardian for their minor children in the event neither of them is around.

• One of our clients is a Physician who is married. Her husband is anon citizen. Her concern was saving money in Estate Taxes and what would occur if she died and her husband survived her, still not an American citizen. We implemented a plan, consisting of Wills and Trusts for each, that will save hundreds of thousands of dollars. Also addressed was the potential negative tax impact facing her husband upon her death as a result of his Resident Alien status. They also chose to create a Pet Trust for their dog.

Your customized plan should address your individual goals and needs. We can work together to put into effect a plan for your asset and income protection that will allow you to keep intact the Estate that you have spent a lifetime creating.