Top 3 signs your business is due for a re-organization
Entrepreneurs are notoriously creative and risk tolerant. Every new business venture usually results in a new company being created. Before you know it, you are the proud owner of a dozen companies, but only a few of them serve a real purpose. So, what are some of the signs that your business portfolio could use a re-organization?
Too Many Companies With No Real Purpose
Very often, new corporations are set up to help accomplish a tax re-organization or close a specific transaction. If your advisor did not explicitly explain the steps of a re-organization, you might not be aware that some of your companies have no additional benefits to offer.
If every time you have to file corporate income taxes you tell your accountant that there has been no activity, ask yourself if the company needs to continue on. Staying up-to-date with tax filings costs money, even for companies that are not active, so why incur the cost if there is no benefit. Consider if it is time to amalgamate or wind up some of the companies.
Passive Investments Accumulating In Your Operating Company
Your operating company has taken off and is starting to bring in more than you need to live on. What should you do with this extra cash? Some chose to buy passive investments (i.e. real estate, securities, etc.) inside of their operating companies.
On one hand, this approach does allow to maximize how much money is invested, since after-tax corporate dollars far exceed after-tax personal dollars. On the other, the investment portfolio would be subject to attack in the event of claims against the company where insurance coverage is not available or is insufficient.
Strategies are available to keep the investment portfolio in your corporate group, while introducing a level of creditor protection.
The Structure Does Not Line Up With Your Exit Strategy
Have you given some thought to your exit strategy? Do you plan to sell your business to third parties or pass it down to your children? Successful exit strategies are carefully planned in advance to optimize the tax outcome. These strategies can get complex and require a personalized approach.
The list is by no means all-encompassing. We believe that every business owner needs to have a thorough understanding of their corporate structure. We take the time to understand our clients’ needs, offer personalized solutions, and keep our clients informed very step of the way. If you are looking for suggestions on optimizing your structure, or just for someone to explain what your existing structure is meant to accomplish, give us a call.