Family Owned Business Organizations
If you manage a family-owned business, you are acutely aware of the work, time, and energy it takes to run a successful business. In a family-owned business, the owners must manage employees, stay on top of the accounting, and make sure that your business complies with all of the federal and state regulations. In addition to managing the complicated day-to-day operations of your family-owned business, it is also essential to protect the assets of your business. At Bennett Weston, our asset-protection attorneys help family-owned companies keep as much of their assets as possible.
Choosing the Right Business Entity is Important
When starting a family-owned business in Texas, it is crucial to spend some time considering which type of business entity you would like to form. The type of entity you choose for your business will affect wealth distribution and business operations. The business entity you select will determine the way you pay taxes, the process for getting a small business loan and how you raise money from investors. Your business structure will also affect your risk exposure. Family-owned businesses have several business formation choices; the most popular options include:
- The Sole Proprietorship: This is the simplest business structure. A single individual owns this business, and there is no real legal separation between the company and the entrepreneur. Both the business entity and the individual file taxes as one legal entity. A sole proprietor reports all deductions and income from his business on his personal form. While a sole proprietorship is the most accessible family business structure to maintain, it also comes with some significant personal legal risk. The owner of a sole proprietor business will be held personally liable in any lawsuit against his company. The sole proprietor does not enjoy any protection from lawsuits targeting the business.
- The Limited Liability Company (LLC): In Texas, an LLC is a business structure that is a combination between a partnership and a corporation. One benefit of selecting an LLC is that it shields the owners from personal liability. It also shields the owners from paying taxes twice. All LLC members pay individual taxes.
- The Corporation: This business structure offers significantly legal protection, but it is also more complicated. The Texas corporation is a separate legal entity. When someone sues a corporation, the business owner will enjoy protection from liability. Both the earnings of the corporation and the shareholder’s dividends are taxes.
How to Protect the Assets of a Family Owned Business
One relatively simple way to protect the assets of a family business is to create an LLC or a corporation. Doing so creates a legal barrier between business and personal assets. It also creates a legal restriction that prevents potential plaintiffs from coming after the personal assets of family members. It is also important to establish ownership rights for the business. If you have an LLC, you can state which family member has ownership rights in the operating agreement. If the family-owned company is a corporation, the corporation can issue share certificates that indicate the percentage of ownership each family member enjoys.
How to Plan for a Family Owned Business Succession
An LLC operating agreement can set forth a plan for what should happen to the business if the owner dies or becomes incapacitated. The operating agreement can also set forth all of the responsibilities and rights of each family member.
Are you are part of a family-owned business in Dallas? If you would like to speak with one of our experienced Dallas business attorneys, contact our office to set up your consultation today.