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Business Formation - The Good, The Bad, and The Ugly

Updated: Oct 19, 2020

Many times we find that your goal will be to hold assets not in your name, but in the name of a legal entity. But how do you go about it? Well an attorney can help guide you in asset protection.

Bad Entities

Sole Proprietorship

General Partnership

Good Entities

Limited Liability corporations

Limited Partnerships

C-Corporations - Double Taxation

S-Corporations - Flow through

Your attorney and your accountant should work together for best solution. Your CPA will find the best way for you to be taxed and your Attorney will know how to protect your assets.

You can also use debt for asset protection. Your lender would get the first chunk at your equity so debtors may not be able to attach.

As always, talk to your attorney before you get started find out if you can move your assets into business entities.


4 Key Mistakes - When Forming

1. Follow proper legal formalities

  1. Work with an attorney

  2. Operating agreement

  3. Meeting minutes - keep track of business decisions, such as purchases

  4. Keep proper tax records - hire accountant / book keeper

2. Make sure business is adequately capitalized

  1. Keep money in business account to pay operating expenses

3. Avoid commingling of funds

  1. Keep money contributed to business separate

  2. Separate business bank accounts / alter ego doctrine

  3. Get a business EIN Number

4. Act in capacity of owner or member of LLC

  1. Anytime you are doing business with someone else. For example, signing contracts

  2. Anything that your business needs to sign a contract form. For example, sign it as name of LLC, by: John Doe, member


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