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The Mistake of a Business Owner Regarding Failing to Plan

Hypothetical #1: Joe’s Sporting Goods, Inc. is owned by Joe, and it rents commercial space. However, Joe decides it would be beneficial to own a commercial building as he just received his new lease terms and the monthly rent is higher than what Joe would pay for a mortgage on his own building. In addition, he could start a separate real estate holding company LLC that the corporation could rent the space from, which would be a significant tax benefit. Joe’s plan is to buy a building in two months’ time when his current lease expires.

Joe makes an appointment with the local bank to obtain a business loan to purchase a commercial building that he found for what he believes is an amazing price. However, his loan application is denied because his taxes were completed with the goal of minimizing his personal tax obligations. As a result, based on his tax returns, he does not have the funds to qualify for a loan. It is prudent to work with your accountant on making sure that your taxes are in alignment with your business goals for the next five years.

Hypothetical #2: Ella and Elliott own Delights, LLC. They filed the articles of organization themselves without any advice. They finally meet with an accountant who informs them of the significant tax savings if they had made an S-Corp election for their taxes. Then Elliott dies. He had three children from two different relationships who do not get along. Ella seeks the advice of a business attorney.

Ella is surprised to learn that her new business partners are three siblings who do not get along. She loves the business that Elliott and her grew together and wants to be the sole business owner. Because Ella and Elliott did not have a buy-sell agreement there is no blueprint as to how the business should be valued. If Ella and Elliott had a buy-sell agreement, the buy-sell agreement would have provided the blueprint as to how the business should be valued and it would have required the business to purchase all of Elliott’s ownership interest so that there would not be a possibility that Ella would end up being business partners with strangers.

Hypothetical #3: Carrie’s business, Carrie Answers Questions, LLC, signs a new commercial lease. A year later, she receives what she believes is an unexpected and inaccurate bill from the landlord for $20,000, which includes her portion of the common area maintenance costs.

Carrie seeks the advice of a business attorney. The business attorney points out that her lease is a net zero (rather than a gross lease), which passes on to the tenant all of the landlord’s expenses, includes capital improvements, insurance, real estate taxes, tax assessments, etc.

Spangler and de Stefano, PLLP assists business owners with most aspects related to their business, including leases, contracts, employment issues, corporate formation, dissolution, estate planning, business succession planning and elder law.

The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader. The information contained herein is not offered as legal advice and should not be construed as legal advice.