Starting a business comes with many responsibilities and considerations. One of the most important ones to keep in mind is the legal structure of your company because it can drastically affect the way your business operates and what options you have to pass it down to your family. As such, choosing the right legal structure can greatly benefit not just your business and its day-to-day operations, but also your family.
So to ensure that they’re both protected, we’ll explore some of the most important legal structures to understand and explain how they can help protect you and your business.
Family Limited Partnership (FLP)
An FLP is an arrangement where family members can pool money into a business project. Each family essentially buys units or shares of the business and they profit in proportion to how much they own. This is a great option if you know that you want to keep the business in the family and you have multiple family members that want to contribute to the startup of the company.
In an FLP, one family member is chosen to be the general partner. This person will manage the partnership and has control over all of the assets. Limited partners have no responsibilities in terms of managing the company, meaning they have virtually no control over it. Instead, they can buy shares of the business in exchange for interest and profits.
FLPs offer estate and gift tax advantages. They’re often used to pass wealth down to younger generations while also securing wealth through tax protections. It can also be easy to assign just one family member to manage the FLP, and the other family members can still contribute as limited partners. This will likely involve the help of a family lawyer to assist in drafting up the FLP and ensuring that all family members agree with the legal structure.
Family Limited Liability Company (FLLC)
Often known as just an LLC, a Family Limited Liability Company is formed by family members in the same states that allow for LLCs. The family members that form the company must be related in either blood, marriage, or adoption. This is one of the more popular ways to protect family business assets and also pass wealth down to younger generations. It’s also a great option for smoothing out family law matters in relation to estate planning.
Unlike an FLP, FLLCs allow all members to participate in decision making. It also protects all members from liability, whereas an FLP only protects limited partners. These differences will be key to deciding what kind of legal structure you should choose for your business. If you need help, then don’t hesitate to contact our specialists at Family Focus Legal today for a more in-depth comparison and advice for your circumstances.
Most business owners use a family LLC for estate planning purposes. For example, if a divorce lawyer gets involved with family matters, then a family LLC may smooth processes such as dividing wealth and protecting assets. If you know that you’re going to pass down wealth to your children, then establishing your company with an LLC legal structure could be the right decision. It ultimately offers a bit more flexibility than an FLP and it comes with the same tax deductions to help protect your wealth.
However, it’s worth remembering that a family LLC costs money to form and maintain. It will also require help from a family lawyer to act as counsel. Legal fees can be several thousand dollars, and there may be other expenses involved such as preparing and filing tax returns every quarter. Despite the costs, it offers a lot of convenience for families and can help protect your business and its assets.
Choosing the right legal structure to protect your business and family can be difficult. There are many considerations to keep in mind and it can be confusing to navigate the terminology and language around legal structures. As such, working with a family lawyer in Sydney can help to simplify the process. With extensive experience in both family law and business law, we’re confident that Family Focus Legal can help ensure a smooth business formation that will give you flexibility and peace of mind. Get in touch with us today to learn more about how we can help you.