Commonly business entities are used in estate, asset protection, and business planning. For example, an S corporation may be used for a larger business; a family limited partnership may be used to consolidate and organize family financial interests; and a limited liability company may be used to form a professional practice or to hold real estate investments.
Business Entity Benefits
There are benefits to using these tools such as asset protection, compression of underlying assets to decrease transfer taxes, and income tax reporting ease and benefits.
However, you only get these benefits if you follow the rules and the practices of the underlying business entity.
Follow the Formalities
If you have a business entity as part of your business, estate, or asset protection plan, treat it like a business. You are not finished once you sign the business formation papers in your attorneys office. For example, a limited liability company requires annual meetings, elections, minutes of the meetings, and tax filings that flow through to the members tax returns.
Do What Your Attorney Advises
When you are setting up your business entity, your estate planning attorney will explain exactly how to handle your new business. Be sure to follow his or her advice. You are not finished when you sign the formation papers and walk out the office door.
Your attorney may offer to take care of the annual formalities and requirements on your behalf. That service is worth the investment as a mistake may cause your business entity to be ruled a sham and it may be undone by the court.