LLC FORMATION. Rossdale Group August 3, :00 pm to 1:30 pm EDT. Jeffrey R. Matsen

Transcription

1 LLC FORMATION Rossdale Group August 3, :00 pm to 1:30 pm EDT Jeffrey R. Matsen 695 Town Center Drive 7th Floor Costa Mesa, CA Phone: Fa: August 2016Jeffrey R. Matsen 1

2 JEFFREY R. MATSEN Worth Magazine: Matsen Included In Nation s Top 100 Attorneys X Founder and Managing Partner of Matsen Voorhees Mintz Law, X A Southern California Super Lawyer (Los Angeles Magazine), with a national reputation for emphasizing wealth preservation for his high net worth and professional, accomplishment-driven clientele X Nationally recognized CLE Speaker in the areas of asset protection, estate planning and practice development X Member, Society of Trust & Estate Practitioners ( STEP ) X Fellow, Center of International Legal Studies X Associate Professor, Chapman University School of Law & Western State University College of Law, in Business & Estate Planning X Visiting faculty member, Maribor, Slovenia Law School X Awarded highest rating ( AV ) for competency and ethics, as published in the prestigious international Martindale-Hubbell attorney directory X Awarded highest rating ( 10/10 Superb )by The Nationally Renowned Attorney Rating Service, AVVO X Recognized as one of O.C. s Top Lawyers by OC METRO Magazine X Worth Magazine Top 100 Attorneys in US X US News & World Report Top Attorney Designation X Orange County, CA Father of the Year in

3 PRESENTER Jeffrey R. Matsen is the founder and managing partner of Matsen Voorhees Mintz LLP (MVM Law). His practice encompasses business formation and transactional matters, estate planning, asset protection, probate, ta and real estate. Mr. Matsen has been an adjunct professor at Western State University College of Law, Golden Gate University and Chapman University School of Law. He has also lectured to various professional groups on areas related to his practice, including limited liability companies, business entity formation and selection, asset protection techniques, and other relevant topics. He wrote the award winning book, The Ladder of Success: An Asset Protection Planning Primer. Mr. Matsen is a member of the American Bar Association (Real Property and Trust Section), WealthCounsel and the Society of Trust and Estate Practitioners (STEP). He is a faculty member and fellow of the Center for International Legal Studies in Salzburg, Austria. Mr. Matsen earned his B.A. degree, cum laude, from Brigham Young University; and his J.D. degree, with honors, from the University of California at Los Angeles. 3

4 THE BASICS AND THE ORGANIZATION OF THE SINGLE MEMBER LLC A History of the LLC: 1892: GmbH in Germany limited liability but more restrictive than U.S. LLC laws Other Europeans and South Americans adopted GmbH model 1977: Wyoming LLC is First in U.S. 1982: Florida LLC 1988: IRS Rev Ruling that Wyoming style LLC would be taed as a Partnership Remaining States jumped on the LLC bandwagon 1997: Hawaii is the last State to adopt the LLC 4

5 THE BASICS AND THE ORGANIZATION OF THE LLC What is a LLC?: Separate Legal Entity Articles of Organization: State Charter Shield of Liability Protection Disregarded Entity For Ta Purposes Partnership if multi member Can Elect to be taed as S Corp. or C Corp if circumstances warrant it 5

6 THE BASICS AND THE ORGANIZATION OF THE LLC Organization: Filing of Articles of Organization Operating Agreement Federal Employer Identification Number (FEIN) Secretary of State Initial List LLC Post Organizational Memorandum LLC Bank Account Member Certificates 6

7 Management Structure X Representative Management (Corporate structure) (LLC with member election of manager/offices) X Vested Management (Limited partnership structure) (Manager managed LLC) X Direct Management (General partnership structure) (Member managed LLC) 7

8 MANAGER MANAGED LLC More like a Limited Partnership with General Partner and more passive limited partners. Caveat: General Partner of a Limited Partnership is personally liable - Manager of LLC is not Manager Managed LLC may be better for Asset Protection Planning-Manager can resign and appoint successor if Manager is personally sued. 8

9 Ta Issues Check-the-Bo regulations allow unincorporated entities to be taed as corporation, S corporation, partnership or as a disregarded entity (sole proprietor) Fleibility Entity must otherwise qualify Unlikely for LLC to lose a partnership ta status while status is more problematic for S corporation (inadvertent S corp. termination under many circumstances) 9

10 PRINCIPAL TAX ADVANTAGES OF AN LLC TAXED AS A DISREGARDED ENTITY OR A PARTNERSHIP OVER AN S CORP. Fleibility in allocating income and/or distributions between the members. Availability of basis adjustments (IRC 754 election) upon sale or echange of membership interests Ability to distribute property with no significant ta effects. Ability to liquidate with no significant ta effects. Ability to generate and distribute income not subject to selfemployment ta Adjusted basis in the LLC for purposes of deducting losses includes all debt Allocated to the members under IRC

11 PRINCIPAL DISADVANTAGES OF AN LLC TAXED AS A DISREGARDED ENTITY OR A PARTNERSHIP COMPARED TO AN S CORP. All business income is subject to self-employment ta. Sale of a membership interest may generate ordinary income or loss, depending on the assets of the LLC, under IRC 751. The balance is capital gains, although some may be at 25% or 28% federal rates. A pre-eisting election under IRC 754 may cause a reduction in the basis of partnership assets. 11

12 PRINCIPAL TAX ADVANTAGES OF AN S CORP. OVER AN LLC TAXED AS A DISREGARDED ENTITY OR A PARTNERSHIP Sale of S Corp. stock is usually all capital gains. Provided reasonable salaries are paid, distributions of business profits are not subject to payroll taes. 12

13 PRINCIPAL TAX DISADVANTAGES OF AN S CORP. COMPARED WITH AN LLC TAXED AS A DISREGARDED ENTITY OR A PARTNERSHIP Lack of fleibility in allocating income and/or distributions Basis in S Corp. stock, for purposes of deducting losses, is increased only by direct loans from the shareholder to the S Corp. Reasonable compensation for services, subject to payroll taes, must be paid regardless of the source or character of the income. Distributions of property to shareholders normally generate gain to the S Corp., either under IRC 311(b) or, in liquidation, IRC 336(a). 13

14 ANSWER TO QUESTION: WHO WINS? Which entity is the best for a tapayer depends on the specific tapayer. Because this determination is initially made before the tapayer has begun the business, it is important to review not only the business plan but also the reasonableness of the assumptions on which the business plan is based. 14

15 Type of Assets Owned Investment Assets better in a LLC or partnership because of step-up basis Operating Assets may be held by any, but consider owning in separate entity and leasing back to operating entity for asset protection 15

16 Funding The LLC Deeds for real property Assignments Changing title on bank and securities accounts 16

17 Investment Assets in LLC Client can transfer security accounts and other investments to LLC Affords more asset protection and also fits in to estate ta planning structure High net worth clients like the protection and ease of operation of LLCs for their investments Also, allows for both income and estate ta planning 17