Profits Interest – Info You Need to Know

You’ve probably heard of “stock options” that enable an individual to buy into a company at a future time. However, if you work for a limited liability company (LLC), you also have the option of utilizing a unique form of equity compensation known as “profits interest” which represents an actual current ownership interest in the LLC. Tax Free Equity Compensation A profits interest, when structured to be in compliance with relevant IRS “safe harbors,” is effectively tax free for the recipient, according to a great article published by Hutchison PLLC. This is because a profits interest basically represents an ownership interest in the future growth of the company but not an interest in the current value of the company. Example of How a Profits Interest Works Let’s say an LLC has three owners. Each owns one third of the company. Then, the company grants a 10 percent profits interest to an employee at a time...

18 November

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Proper Accounting of Business Loans Will Help Save Time and Money Down the Road

Posted by Bobby Feisee

in Bobby's Blog

As new businesses are starting out, it can be difficult to establish a steady cash flow to cover expenses. Business owners often want to “lend” their business money here and there to make sure the company stays operational. In many cases, where the business only has one member or owner, these loans go undocumented and no interest is paid when the principal is paid back. Once you decide to use your personal funds to invest in your business, you’ll need to work with your accountant to determine if the money should be treated as equity or as a loan to the business. Either way, the transfer of funds between owner and business should be well documented in the company’s accounting records. An equity investment, commonly referred to as a capital contribution, is when the owner transfers money into the business only for an increase in the owner’s equity. This is not a...

02 May

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Essential Small Business Advice – Follow Formalities

Posted by Bobby Feisee

in Bobby's Blog

Many small business owners think that if they set up an LLC or corporation, they are fully protected from individual liability. Not true. While setting up the company structure is a critical first step, it is imperative that you perform certain formalities throughout the year to maintain your liability protections. Annual Meetings Corporations are required to hold an annual meeting every year and maintain a record book of the meeting minutes. While LLC’s are often not required to hold an Annual Meeting, we recommend that the members and managers of the LLC still hold a formal meeting on a yearly basis. The meetings are an opportunity to discuss and document important business decisions made throughout the year. Including your CPA, attorney, and other business advisors in the meeting will make the meeting even more productive. You can review tax planning for the year and make sure your legal documents are up...

18 February

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Limiting Exposure to Liability Critical for Small Business Owners

Posted by Bobby Feisee

in Bobby's Blog

If you’re a business owner, one of the most important legal concepts you need to be familiar with is limited liability. You’re probably somewhat familiar with limited liability if your business is structured as an “LLC” (which stands for Limited Liability Company) or “PLLC” (which stands for Professional Limited Liability Company). Additionally, if you’re a shareholder, you enjoy limited liability for the actions of the corporation. However, courts across the country have recognized certain circumstances where a court can “pierce” the proverbial “corporate veil” and hold shareholders liable for the actions and/or negligence of a company. The standard used to pierce the corporate veil is murky at best. Many courts utilize different standards. Even courts in the same state apply different tests. Nevertheless, the fundamental idea behind disregarding limited liability is when the shareholder does not treat the corporation as a separate legal person. Courts reason that if you...