To continue a few more ideas from our Monday night’s
Connector Coaching call, here are a few more thoughts on the best legal entities to consider. There’s a lot more to know about the tax advantages and asset protection features of each of these but this will give you an overview of the pros and cons of each legal entity (Check out yesterday's post for more).
Limited Partnerships – In this legal structure the partners cannot be actively involved in the management of the business. It’s important to be realistic with this. If you’re the kind of person that has to have your voice heard and you can’t avoid getting involved, this structure is not for you. Limited means limited.
If you do get involved you can lose your status as a limited partner and that opens a whole different set of issues and defeats the original intent. All income coming into limited partnerships flows through to the members, the partnership does not pay taxes.
Family limited partnerships where members are family members have some unique tax advantages. Family limited partnerships can be used to pass tangible assets that wouldn’t normally be found in a business such as jewelry, art, heirlooms, etc. to the next generation. In limited partnerships it’s a good idea to have separate CPAs, bookkeepers and administrative functions. Downside – these can be tough to sell and costly to set up.
S Corps or Subchapter S – This is a standard corporation that has elected a special tax status with the IRS. The basic information requirements are the same as a C corporation wherein formation documents must be filed with the state agencies and necessary filing fees paid, of course. The S corp is different from the C corp in that it does not suffer double taxation like the C corp. With an S corp the profits and losses pass through to the shareholders and must be reported on their individual tax returns.
S corps also have unlimited life extending beyond the illness or the death of its owners. Stock can be sold, business expenses may still be deductible, and ownership is relatively easy to transfer. Downside – The number of owners must be fewer than 100, they cannot be non-resident aliens and all income tax obligations flow through to the individual owners.
This is just some of the material we covered in my last coaching call. Learn how you can participate in an ongoing wealth building program. Connector Coaching Program
Limited Liability Companies or LLCs. An LLC is a cross between a limited partnership and a corporation. You can have more than one owner. You file a 1055 tax form to do your return. From asset protection standpoint an LLC has many tax benefits. With single member LLCs you can add an S election that allows you to run it as an S corporation to get some additional advantages. An LLC limits your legal liability. Like a C corp you are only personally responsible when there is gross negligence or fraud involved. So, don’t do anything stupid and your LLC will protect you and your assets just fine!
You can have as many members as you want and you can have foreign investors. This is great when you are trying to come up with additional capital and you need flexibility in how you have structured the business. Income and losses flow to members so there is no double taxation. Great for holding real estate.
You don’t have to have formal meeting minutes like a C corporation. An LLC may protect assets better than any other structure. If you do get sued, you usually cannot lose stock to new members taking over because the current members decide who gets stock. If creditors put a lien on your interest in an effort to get paid, they may be liable for a tax on that debt. Bad for creditors, good for the LLC.
Rules vary by state so check your local laws although most states allow LLCs. Downside – Some states require LLCs to terminate at 30 years or at the death of a member but there are ways around that when structured properly.
Corporations or C corps. A lot of accountants underestimate the tax advantages of C corporations. One big advantage of a C corp is you can control the income and you can pick the fiscal year end. Most other entities are based on the calendar. If you have a huge income influx, you can make adjustments to offset tax liabilities. You can also do what is called upstreaming income – legally shift income from your LLC to your C corp. The C corp is great to use as a financial planning tool.
Bottom line - You have time with c corps, lots of deductions and you can take advantage of many fringe benefits with minimal restrictions. The downside- lots of paperwork and double tax. You are going to be taxed on the income you draw and on the income created by the corporation.
C corp requires planning but if you are expecting higher income a C corp could be good. Use an attorney to set this up. Again, these are just general and condensed points to consider when setting up your new business or looking for legal and safe ways to building financial freedom. Always use professional financial, legal, and tax advisors.
Andddddd... just as importantly, learn for yourself how to take charge of your wealth building strategy. Join one of our wealth coaching programs or take one of our online seminars or live seminars or workshops. Nobody cares about your financial well being as much as you do! Please feel free to leave a comment or ask a question. Just click the comment button below this post.
Have a prosperous day!
Gabby Huguenin
Wealth Coach
CEO Wealth Classes Coaching, LLC
Connector Coaching Program 888-888-3612
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advisors, wealth coaches, and industry specific legal and financial experts. I believe it is very important to learn all you can about wealth building strategies but that doesn’t mean you have to know everything and do everything yourself.
decisions. For example, I don’t put a lot of stock in the stock market. It’s tied to a win-lose relationship and a lot of retirement strategies are built around this model. But hey, if it’s working for you then go for it but there are better ways to plan for retirement with built in safety and security features that will let you sleep nicely at night. 
absurdity of pocketbook predators. Don't let this craziness scare you because there is a solution. It's called Asset Protection Solutions!
isks. Why don't CPAs tell you about those really unique tax deductions? 
health building tips so I thought I would add a few more. 
Infinite Wealth System. If you've been to another Infinite Wealth System workshop or taken our online course you are qualified to go to the next level of our wealth training programs. Visit 
recent connector calls. Jim shared some great insight about what it’s taken him to become a millionaire. If anyone understands the process of building lifelong wealth, it's Jim. 
lth. 
entrepreneurs and W2 wage earners just under 14 million in income taxes over the past six years. 
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