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To: GoLightly
Thanks for the info on the corporation tactics. Will be dealing with that next year. I am actually in a position where one of my General Partnership Companies (50 %) is occasionally leasing equipment to my Sole Proprietorship Company. In fact, I talked my partner into buying the equipment out of the General Partnerships Gains because we could make money in the long run leasing it out. I can just imagine how complex things can get in the future when incorporation is done. And I do understand how the best way to avoid potential conflicts is to use Fair Market Values in all situations.
40 posted on 10/16/2008 2:29:48 PM PDT by justa-hairyape
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To: justa-hairyape; drangundsturm
Pay close attention to this part of post 33:

Joe has most of of the value of the business ends up being "goodwill"

When you incorporate, it's kind of like gifting some of your assets to the corp. It generally owns the lion's share of itself, so you, as the managers have to look out for its interests, not just the interest of the shareholders holding the stock that's been issued (you).

Take extra care when you take bonuses, because the IRS might redefine them to be dividends, taxable to both the corp & you.

By keeping most of the assets in a separate entity, you gain back much of the flexibility you lose with incorporation. Make sure you have all of your lease agreements in your corporate books. If all leases have a one year term, you can reevaluate the rate that the corporation pays every year. The corporation must get a reasonable deal, so you can't drain corporate assets above a fair market rate in your leases. Anything shorter than a year may raise red flags.

Understand, you have to find a balance, because your corp will have more difficulty getting credit if it owns no assets. If you have a good relationship & history with your bank, it shouldn't be a problem, because you'll do most of your borrowing with the sole-prop or partnership. As the owner of the sole-prop or partnership, be careful using the sole-prop's or partnership's assets as collateral for corporate borrowing, because that would pierce the corporate veil.

Also, be careful about lending your corporation anything, because that also pierces the corporate veil & it may be looked upon as "goodwill", like the assets you gave the corporation when you incorporated. Getting the money back will be seen as a taxable event for you.

44 posted on 10/16/2008 3:28:59 PM PDT by GoLightly
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