Estate Planning and Business Formation in New York

PARTNERSHIPS

Partnerships come in several forms, and the obligations and protections vary quite a bit. A general partnership can be formed without filing paperwork with the state, and the partners do not even need to have a written partnership agreement. However, general partnerships also do not protect the owners – each is liable for the debts of the partnership and is bound by decisions made by other partners.

A limited partnership (LP) is more structured and provides much greater protection to those partners who remain limited partners, but the LP must also have one or more general partners who manage the business and are personally liable for its debts and obligation. The personal liability of the limited partners is limited to the amount of property that they contributed to the business.

CORPORATIONS

Corporations are the traditional business entity that have been used to keep the rights and the obligations of owners and their businesses separate, creating a “corporate shield” for liability purposes. They can offer many benefits, but they also come with rigid legal requirements and for C Corporations the problem of double taxation. Because of this, many entrepreneurs find that LLCs are often a better fit, allowing greater flexibility while maintaining the “shield.” Some financing options prefer or require that businesses they fund be corporations, however, making it the best option for those businesses.

Details like the type of entities available and how the entity choice affects the business’s rights and responsibilities are determined by state laws, which also dictate what types of estate planning vehicles are available. Whether to form your business entity in New York, Delaware or another state is also of importance, as is selecting a New York business planning attorney to help you select the business structure and jurisdiction that will best fit your estate planning goals while complying with all relevant statutes.

Short- and long-term considerations in entity formation

While choosing a type of business entity based on how it suits your estate planning goals is wise, the entity choice will also have near-term consequences as well. For example, it can affect:

• Paperwork needed for start-up
• How both the business and its owners are taxed
• How much flexibility is permissible in record-keeping and other administrative tasks
• Whether the business or its owners can be sued
• Who is liable for a judgment against the company
• Who may invest in the company
• Options for an exit strategy

When it comes to estate planning considerations, business entities like LLCs and corporations – unlike sole proprietorships – are legal “people” separate and apart from the individuals who own or manage them. Depending on the entity’s structure, this can mean:

• Assets held by the entities may be subject to more flexible transfer rules
• Transfers may be exempt from estate taxes
• The entity’s ownership of assets may remove interpersonal conflicts that could arise if the assets were instead owned by the individual at the time of his or her death, disability, or retirement
• The owner may not have the same ability to sell, divest, or bequeath the assets once they are titled to the entity