When the owner first sets up his business structure, he has to make a lot of important decisions before the first dollar ever comes in.
Although in a perfect world it would be nice to know up front whether it would be best to operate as a proprietorship, an LLC, a corporation, a trust, etc., real life never seems to match what the sixty month spreadsheet promised. The good news is that an expert at structuring can fix or fine tune most systems and structures in mid-stream without disrupting things too much.
This can be more important than you think when it comes to maximizing benefit for everyone involved, especially when it comes to tax planning for sophisticated investors and businesses, where the final structure sometimes involves several moving parts.
As a general example, the active business (where most of the risk usually is) might be treated very differently (and be in a different entity) than the investments acquired as a result of that business’ success. That final structure could involve corporations and/or LLC’s, and/or trusts and/or partnerships, etc. In these situations the principal parties have a greater responsibility to understand the various kinds of entities and how they interact. Depending on your state, these entities sometimes can also provide privacy and liability protection, significant considerations when setting up a company’s internal operating systems and procedures.
Structuring is often even more important when dealing with how two or more persons do business together. I am surprised how often people with completely different financial situations, different skill sets, different motivations, different ages, different risk profiles, etc. enter into business together in such a way that they all get the same benefits (and responsibilities, etc.).
When dealing with high-quality people, there are sometimes opportunities for great custom arrangements where, for instance, more of the tax benefits might go to one person, more of the cash flow to another, increases in value to one or the other, liability protection to one, personal liability (e.g., for construction loans) to another, confidentiality to one person while the other is “out front”, passive income to one person while the other has active income, etc., etc., etc.
The importance of optimizing the structure and organization of your business cannot be overstated. And at the advanced levels, the same principles apply to transactions done by one person between the various entities he controls one way or the other.
This is what we normally do with existing tax clients, but if your issues are serious enough you may want to consider bringing me on as a one-time coach for a specific deal you are involved in.
