A follow-up to our recent blog series on change in entity
As a quick follow-up to my recent blog series on "S" to "LLC" election this from fellow Vistage member Harry Barth, Managing Partner BarthCalderon LLP Barth Attorneys Website
As I have it, you have until March 15th for change in election.
I am always amazed when I speak to business owners about protecting the one thing they have shed blood, sweat & tears over.
What's the one thing? The business.
What amazes me? The fact that many businesses that can be structured as a Limited Liability Company for added protection against lawsuits are still S Corporations.
There are just so many misconceptions about changing from an S Corporation to a Limited Liability Company and so inertia sets in, proper planning does not get done, life throws a curve-ball and people and businesses get hurt.
Two very important components of comparing an S Corporation to a Limited Liability Company are inside and outside liability. Consider this:
- Inside liability: This comes from the operations of the business and is the reason you have put your company into a legal entity (think corporation). You want to contain the liability within the confines of your corporate entity as opposed to having the liability attack your house, rental property or investment accounts.
- Outside liability: This is a liability to the owner of the business and so the creditor is looking down at the business to see what is available to satisfy a judgment. One big problem with an S Corporation and an outside liability is that one remedy for the creditor is to take control of the stock. This is a very big deal because you can lose your ownership and lose managerial control. Limited Liability Companies have a higher level of asset protection from an outside liability compared to a corporation and a big part of this added protection is never being in a position to lose control of your stock.
In closing, circumstances vary case by case. Do your own due diligence as I am passing this along as informational only. Please consult with your business attorney and/or CPA as your best action.