The two significant distinctions between an "S" and "C" Corp are: (1) an "S" Corporation is a pass-through tax entity (the profit or loss of the business is reflected on the personal income tax return of the owners) whereas in a "C" Corporation is a separate legal tax entity which can lead to double taxation. (2) The ownership of an "S" Corporation is restricted; however, the "C" Corporation does not possess these same restrictions such as number of shareholders, residency of shareholders, ownership and transferability of shares.

Forming a corporation is an important step for small business owners, and taking this step has many benefits for the business and its owners. Some benefits of both "S" and "C" Corporation are:

-	Limited Liability - Corporations provide limited liability protection to its owners. If the Corporation if property established and maintained the owners will not be personally responsible for the debts and liabilities of the business. Creditors cannot pursue owners'/shareholders' personal assets for business debts.

-	Tax Advantages - Corporations often gain tax advantages such as: the deductibility of health insurance premiums paid on behalf of an owner-employee; savings on self-employment taxes, as corporate income is not subject to Social Security, Workers Compensation and Medicare taxes; and the deductibility of other expenses such as life insurance. For information on the types of tax advantages your business may gain by forming as a corporation, please speak with an accountant or tax advisor.

-	Perpetual Existence - A corporation can exist for an unlimited time period beyond the life of the owners.

-	Transferability of Shares - Although there may be restrictions on the transferability of an "S" Corporation shares, transferring shares is typically easy.

Our office can assist you with establishing a Corporation in all 50 states, including, the State of Delaware and the increasingly popular State of Nevada. Delaware and Nevada are preferred because they are pro-business states where your personal assets would experience less exposure and shareholders are not a matter of public record, allowing complete anonymity.

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LIMITED LIABILITY COMPANY

A Limited Liability Company (LLC) combines the personal liability protection of a corporation with the tax benefits and simplicity of a partnership. The owners of an LLC are not personally liable for its debts and liabilities, but also have the benefit of being taxed only once on their profits.

LLC's are similar to an "S" Corporation where they are both separate legal entities and both are pass through tax entities which avoid double taxation. However, an LLC does not have the same restrictions of an "S" Corporation such as the number of owners is not limited in an LLC, Non-US residents can be an owner of an LLC, and an LLC does not have the same formalities requirements as an "S" Corporation such as minutes.

Our office can assist you with establishing an LLC in all 50 states, including, the increasingly popular State of Nevada. A Nevada LLC is preferred because it is a pro-business state where your personal assets would experience less exposure, no income tax (only if you don't work in California or have employees in California), and owners of Nevada company's are not a matter of public record, allowing complete anonymity.

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DELAWARE SERIES LIMITED LIABILITY COMPANY

As mentioned above, a limited liability company, like a corporation, is recognized as a separate legal entity from its "members." Only the LLC is responsible for the company's debts, thus shielding the members from individual liability. In 1996, the Delaware, and more recently Nevada, legislature allowed an LLC operating agreement to provide for the establishment of designated series of specified property or operations with separate business purposes or investment objectives, such that the debts, liabilities and obligations relating to a particular series would be enforceable only against the assets of such series and not against the assets of the LLC or other series'. Each series is essentially a separate "cell" or "mini-LLC" within the LLC itself, with separate members, managers, assets and liabilities, and business interests. Therefore, the assets of a particular series are protected from enforcement action against the assets of the LLC and liability incurred by one unit does not cross over and jeopardize assets titled in other "mini-LLC" of the same Series LLC.

In the future, when you acquire, other income properties or business interests they can be placed into the Series LLC under a new series; thereby, saving you money by avoiding the necessity of establishing new companies, filing only one tax return for all properties, and, possibly, avoid paying additional State minimum franchise taxes on each property since each series is part of one LLC. Please be aware that this is just a brief summarization of the Series LLC.

There are unanswered questions regarding the Series LLC since it is a relatively new legislation in the State of Delaware and Nevada. The legislation involving the Series LLC's have not truly been tested for asset protection or taxes. Delaware and Nevada Series LLCs must be properly established and maintained according to the Delaware or Nevada legislation. Please contact out office to assist you in establishing a Delaware or Nevada Series LLC.

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LIMITED LIABILITY PARTNERSHIP

A Limited Liability Partnership (LLP) allows partners to take a managerial role in the business and enjoy limited personal liability. California allows attorneys and accountants to operate their practices as a LLP. This formation is a General Partnership that elects to be treated as an LLP by registering with the Secretary of State. Many attorneys and accountants find the LLP operate as an LLP because it shields the partners from liability of other partners, they can operate more informally than a corporation, and retain full partnership tax treatment.

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FAMILY LIMITED PARTNERSHIP (FLP)

A Family Limited Partnership is an entity that allows for control and management of partnership assets while providing asset protection benefits. A Family Limited Partnership is structured in the same manner as a limited partnership, except that only family members may participate.

In a Family Limited Partnership, generally, the senior family members (parents or grandparents) contribute assets in exchange for a small general partner interest and a large limited partner interest. They can then give all or a portion of the limited partner interest to their children and grandchildren. Transferring limited partnership interests to family members reduces the taxable estate of senior family members. The senior family members transfer the value of the asset to their children, removing it from their estates for federal estate tax purposes, while retaining control over the decisions and distributions of the investment. Since the limited partners cannot control investments or distributions, they may be eligible for valuation discounts at the time of transfer.

Transfers of limited partnership interests are also eligible for the annual gift tax exclusion, a powerful tool for reducing income, gift and estate taxes. According to law, the value of limited partnership shares can be discounted when transferred to family members. A Family Limited Partnership can usually be amended as family circumstances change.

A Family Limited Partnership also protects assets from claims of future creditors and spouses of failed marriages. Creditors may not force cash distributions, vote, or own the interest of a limited partner without the consent of the general partners. And in the event of a divorce, where a limited partner ceases to be a family member, the partnership documents can require a transfer back to the family for fair market value, keeping the asset within the family structure.

Therefore, a Family Limited Partnership can:

(1) Save in income taxes every year
(2) Save in future estate taxes
(3) Protect your property from lawsuits

Care should be taken both when creating the Family Limited Partnership and in observing the formalities of operating the Family Limited Partnership as a family business. Be sure to investigate state laws and the rights and obligations associated with transferred property, and always discuss any of these decisions with professional appraisers.

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BUY-SELL AGREEMENTS

Sole proprietorships, partnerships and small closed corporations all need to consider what happens if the owner or one of the partners or shareholders dies or becomes disabled. Every co-owned business needs a buy-sell, or buyout, agreement the moment the business is formed or as soon after that as possible. A Buy-Sell Agreement can provide a smooth transition of complete control and ownership to those who are going to keep the business going.

A buy-sell is an agreement between the owners of a business which details what is to occur upon the death of one of the owners. Such agreements can also deal with the situation where one of the owners becomes disabled, retires, divorces, or wishes to sell their interest in the business. Typically, the buy-sell agreement provides that the surviving owner of the business will purchase the deceased or withdrawing owner's share of the operation. The agreement should set forth the purchase price to be paid or should provide a formula for determining the price. Perhaps most importantly, the agreement must have a mechanism for providing the funds needed to make the purchase.

Different types of plans:

Cross-Purchase Plan - With a cross-purchase agreement, each shareholder or owner buys a life insurance policy on each of the other shareholders. The purchaser of the policy is both the owner and beneficiary of the policies. An amount equal to the share of the purchase price set forth in the buy-sell agreement is purchased. Upon the death of a shareholder, the other shareholders are then able to use the life insurance proceeds to purchase the deceased owner's shares. This plan is difficult to administer if there are numerous shareholders that must buy a plan for each other.

Stock Redemption Plan - The corporation, rather than the stockholders, purchases the insurance policy, pays the insurance premiums and is the beneficiary on the lives of each shareholder. Upon the death of one of the stockholders, the death benefits are paid to the corporation who then buys the deceased's stock from the deceased's estate. An advantage of the stock redemption agreement is that it is easier to administer for multiple shareholders.

There are several tax consequences of each plan which must be thoroughly discussed prior to drafting an agreement.

Where will the funds come from to fund the Buy-Sell Agreement?

1. Buy life insurance to fund the policy. There may be several key advantages to life insurance in funding a buy-sell agreement:

- Complete financing guaranteed from the beginning
- Death proceeds are generally free from Federal income tax
- Cash value of life insurance can be used for a buyout due to retirement or disability
- It may be the most economical method - discounted dollars.

2. Borrow Funds.

3. Set-up a savings account within the company in anticipation of an event like this happening but, again, if you are a corporation there may be accumulated earnings tax problems and if you are not a corporation, it may be difficult to maintain a savings account or the death may occur prematurely before enough funds are available.

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SHAREHOLDER AGREEMENT

A shareholder agreement is a written agreement among all of the shareholders of a corporation relating to the affairs and management of the corporation allowing the shareholders to manage the corporation in a partnership-like manner. A shareholder agreement may contain provisions relating to any phase of the affairs of a corporation, including, but not limited to, the management of its business, the division of its profits, or the distribution of its assets on liquidation. As between the parties to the agreement, it may alter or waive all provisions of the General Corporation Law, except those that are specifically exempt from alteration or waiver. If the corporation has only one shareholder, the shareholder agreement is between the shareholder and the corporation.

A shareholder agreement permits shareholders to (1) Manage the corporation informally, according to the provisions of the agreement, without observing corporate formalities related to director and shareholder meetings and make decisions in areas usually reserved for the board of directors, such as dividend policy, distribution of assets on liquidation, selection of officers, and determination of their compensation and tenure.

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PURCHASE & SALE OF A BUSINESS OR PRACTICE

Our office can assist in all stages of the purchase and sale of a business or professional practice including negotiating the deal, completing the due diligence, and finalizing and executing the necessary documents to ensure success of your transaction.

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CORPORATE LAW &FORMATION OF ENTITIES

CORPORATIONS (S & C)