Getting You to
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Estate Planning for Business Owners

Owning a business puts you into a special class of people who commit to working harder than anyone else with longer hours, more stress, and usually a perception from your employees that you somehow have it easy as “the boss.” Because of your work ethic, business owners also tend to have wildly different notions of what they want in retirement. Some of you see it as a chance to travel. Some of you want to refocus on loved ones and spending quality time while your good health continues. And some of you see retirement as a chance to start a new business that may be a bit more of a risk but represents a passion you have waited to pursue. Whatever living in retirement means to you, being a business owner also means that you have to plan for your transition earlier than others and with significantly more thought and preparation to do it successfully.

Just like the sometimes wildly different views on living in retirement, business owners also have unique expectations for passing a business to the next owner. Some may wish to never fully retire, instead arranging a flexible schedule with a new owner taking on all the risk and liability. Some may wish to slowly transition control and ownership over a period of time, so they can train their successor and pass on their knowledge and experience. Others may wish to fully retire and not be involved at all after they do so.

The process for transitioning your business is often based, in large part, on the identity of the next owner. Will it be your family? Another business? Or do you plan for the business to simply end when you retire? What period of time are you hoping to accomplish this transition? If you have employees, how will they be impacted? These are all questions that must be answered to arrive at the right plan for your business.

At Hooper Law Office, LLC, we have a planning method unique for business owners that, upon completion, results in a comprehensive, step by step plan for you as the owner and for the business, so the idea of retirement becomes a reality.

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Common Business Entities

Download PDF Chart
ABOUT

An individual acting as a business without a formal structure. 

  •  No operating agreement
  •  Nothing to file
LIABILITY

Sole Proprietors have no insulation from business liability and are entirely reliant on insurance.
TAXES

Taxes are usually filed using the individual’s social security number (SSN), but can apply for a separate Employer Identification Number (EIN)

GOVERNING DOCUMENTS

Can file for a “Doing Business As” (DBA), formally known as a “Trade Name” with the state to establish a unique name for the business ($15 filing fee; good for 10 years)

PROS
  • Easy
  • No extra paperwork or filings (aside from DBA)
  • No need to keep personal and business assets separate
CONS
  • Both the business and the owner have potential liability
  • Completely reliant on insurance for financial protection from liability
  • No formal business structure
GENERAL LIMITED
ABOUT Two or more persons share the management and liability of the business. At least one partner (but not all) acts solely as an investor in the business.
  •   Has no management privileges
LIABILITY General Partners have joint and several liability for all debts and judgments. The limited partner’s liability is generally restricted to the assets they have invested in the business.
TAXES Income is taxed at the owners tax rate and is usually divided by the ownership interest in the business.
GOVERNING DOCUMENTS

Partnership Agreement 

  • An agreement between Partners on how the business will be run, how expenses and income will be shared, and on how the agreement may be modified in the future.

Partnership Agreements are not mandatory.
PROS
  • Easy to set up and maintain
  • Taxed only once
CONS
  • No liability protection
  • Generally, cannot pass on the business to the next generation (partnership interest cannot be passed on, but assets of the partnership can be)
S-CORPORATION C-CORPORATION B-CORPORATION
ABOUT Two or more persons share the management and liability of the business.
  • 100 or fewer shareholders
  • Shareholders must all be individuals. No business may own shares.
  • Only U.S. citizens or residents
  • May only have one class of stock
 Generally, a group acting as a single unit for the purposes of earning profit. The ownership is usually divided into shares. A type of Corporation that allows the business to be for-profit, but requires it to consider public benefit in its decisions.
The requirements of for a B-corporation in Wisconsin include:
  • The corporation must have the purpose of creating a general public benefit.
  • The officers of the corporation must consider the effect of corporate actions on shareholders, employees, customers, the environment, and the community in general.
  • To maintain its status as a B-corporation, the benefit corporation shall annually provide its shareholders, within 30 days of the end of the benefit corporation’s fiscal year, with a statement as to the benefit corporation’s promotion of general public benefit or any specific public benefit identified in its articles.
LIABILITY The corporation itself has liability, but an individual shareholder’s only risk is losing the value of the shares. Owner’s liability is limited to the value of the stock in the company.
However, officers and directors can be held liable by customers, shareholders, and the public if they fail to meet the “public benefit” purpose of the corporation.
TAXES An election that can be made by certain businesses under the Internal Revenue Code.
Taxed only once at the personal level.

Taxed twice:

  1. The corporation pays taxes on the income at the corporate tax rate.
  2. Each individual shareholder pays income taxes on their own portion of the income or dividends.

Expenses associated with operating and maintaining the business are paid prior to taxes. 

  • A wider variety of expenses can be claimed as associated with operating and maintaining the business.
GOVERNING DOCUMENTS

Articles of Incorporation

  • Basics of ownership and management structure Corporate Bylaws
  • Fleshes out the basics detailed in the Articles of Incorporation
PROS
  • Firm business structure
  • Can pass interest to next generation
  • Limited liability
  • Accumulate value in the business itself
CONS
  • Structure is difficult to change
  • Possible double-taxation (except for S-Corporations)
  • No step-up in cost basis of the assets owned by the corporation at an owner’s death (there is still a step-up in cost basis for an owner’s shares, just not the assets held in the corporation’s name)
ABOUT

A business structure that offers limited liability and gives the owners a choice in how to be taxed.

  • Liability limited to the assets of the LLC (as long as it is operated as a separate entity) 

The LLC must be treated as a separate entity from the owner(s) in order for limited liability to stand.

  • No comingling of assets
  • Basic filings must be completed
  • Assets of LLC must be identified as being owned by the LLC
LIABILITY Liability is limited to the assets of the LLC (as long as it is operated as a separate entity). An LLC owner may still sign personal guarantees that introduce person liability
TAXES

Can be taxed in one of three ways (the owners decide which)

  • Single-owner LLCs can be taxed as a Sole Proprietorship (disregarded entity
  • Multiple-owner LLCs can be taxed as a Partnership
  • Multiple-owner LLCs can be taxed as a Corporation
GOVERNING DOCUMENTS

Operating Agreement

  • What the business is for
  • How taxed
  • How the LLC is managed (one or more persons)
  • Rights of members; what do members have to approve
  • How and when can you transfer interests and to whom
  • How and when does the business end
PROS
  • Limit liability to the assets of the LLC, protecting personal assets of the owners.
  • Tax status flexibility. Can be taxed as a Sole Proprietorship, Partnership, or Corporation.
CONS
  • Must be careful to not comingle personal and LLC assets, or else lose the personal liability protection.