Client Marketing Letter on Business Entity Selection

 

[Date]

[Client Name and Address]

Dear [Client Name]:

A principal consideration for any business, whether new or existing, is choosing an appropriate legal entity. Available options include C corporations, S corporations, general and limited partnerships, limited liability companies (LLCs), limited liability partnerships (LLPs), and sole proprietorships.

Each type of entity has various advantages and disadvantages. One issue to consider is tax savings. The proper entity type can minimize self-employment and income taxes. Understanding the total tax situation—income tax, payroll tax, and estate tax exposure—is essential in determining the choice of entity.

Personal liability protection is often an owner’s main objective in choosing the appropriate entity. Operating as a proprietorship or general partnership offers no owner liability limitation. Limited partnerships, LLCs, LLPs, and S and C corporations provide liability protection for the owners. For sole owners, the single-member LLC is becoming the popular liability-limiting alternative to a proprietorship.

If a business is owned by more than one individual, it cannot be run as a proprietorship. If all owners provide management services, a limited partnership is not a viable option because this would jeopardize their status as limited partners. Other entity types do offer management by multiple individuals without limitations.

Capitalization of the business through outside sources may also be an objective. When issuing ownership interests, it is important to identify preferences regarding voting versus nonvoting status of investors as well as the method of return desired by the investors—equity growth or current income distributions.|

In many cases, a change in entity status is sought to accomplish a transition in ownership. Whether the objective involves moving ownership to a successor via gifts, an installment sale, a stock redemption, a bequest, or a combination of methods, it is often necessary to use a different form of entity to meet these objectives.

While each entity selection situation is unique, our systematic approach of matching the various entities’ attributes with the owner’s objectives will consistently yield the best choice. Before helping choose the structure for your business, we will become familiar with all aspects of the business, address all major tax and nontax issues, and consider all possible alternatives. Only after completing this careful analysis will we recommend the appropriate entity. I would like to meet with you to discuss how our approach to entity selection can benefit you and your business. I’ll call you next week to arrange a convenient time.

Best Regards,

                                                                                                   
(Practitioner or client contact person)