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Michigan attorneys who have both practical business experience as well as legal expertise are rare. David Soble is one of these exceptions. He is a business owner, former “big bank” insider, active real estate investor, and of course, lawyer. He brings over 30 years of real life business and real estate experience to the table for his business clients.

Operating a business is not easy. Business owners have to regularly deal with issues as mundane or as complicated as:choice of business entity; business tax consequences; organizational documents; operating agreements; partnership agreements; employment contracts; consulting contracts; non-compete agreements; compliance with bank and consumer protection laws; commercial negotiations; and an resolution of stockholder/partner/LLC disputes. This is not an exhaustive list. Whether you own a business or are opening a business, you owe it to yourself to speak with David Soble and his “proven resource” of business colleagues who can effectively address your concerns. 

Different Types of Entities:

1. Sole Proprietorship or Sole Proprietor DBA: A sole proprietorship is a business structure with one owner. A majority of small businesses in the United States are sole proprietorships because it is the easiest to set up and maintain. If you do nothing to choose a legal structure you will default to a sole proprietorship because there is no paperwork to file apart from additional schedules on your personal income tax returns. However, if you plan to operate the business under a name that is not your personal name, then you must file for an assumed name “DBA” (doing business as) certificate with the county clerk of the county where your business is located.

There is no legal separation between the business and the owner in a sole proprietorship. This means that as a sole proprietor you will have unlimited responsibility for the liabilities and debts of the business. For instance, if the business cannot pay money owed to a vendor, that vendor may sue you individually. It also means that any income or losses of the business are accounted for on your personal tax return.

2. Partnerships: There are two types of partnerships: General and Limited. A general partnership is similar to a sole proprietorship except that it has two or more owners. Like a sole proprietorship, it is easy to set up and maintain. There is no paperwork to file unless you are operating the business under a name that is different from the personal names of the owners in which case you need to file a “DBA” (doing business as) certificate with the county where the business is located. It is also highly recommended that the partners create a partnership agreement that addresses roles, responsibilities, and contingencies, in order to avoid disagreement and conflict between the partners. In a general partnership the owners have unlimited liability for the debts of the business. This means that even though the partners share the profits equally, each partner is 100% responsible for any debts of the business. 

A limited partnership has one or more general partners and one or more limited partners. The general partner(s) control and operate the business and are 100% liable for any debts of the business. The limited partner(s) do not participate in the operation of the business, and their personal liability is limited to their contribution to the partnership. Typically a limited partner is an investor.

In order to form a limited partnership in Michigan, you must file a certificate of limited partnership with the Michigan Department of Licensing and Regulatory Affairs (LARA). If a limited partnership does not follow statutory requirements it will be treated as a general partnership so you should consult with an attorney before creating a limited partnership.

3. Limited Liability Company (LLC): An LLC business entity was created to combine the advantages offered by both partnerships and corporations. An LLC provides the members (owners) of the business limited liability protection like shareholders in a corporation combined with the simpler operation and pass-through tax characteristics of a partnership. An LLC is created by filing Articles of Organization with Michigan Department of Licensing and Regulatory Affairs (LARA) along with the appropriate filing fee. Like a corporation, an LLC will be responsible for paying an annual fee with LARA to continue its existence.

In addition to the Articles of Organization, members of an LLC are encouraged to establish an Operating Agreement. Particularly in a multi-member LLC, this is the basis on which you establish consistency and understanding about how the company will be managed and decisions made, duties of members, what contributions are required from members, how profits and losses will be calculated, limitations of liability and protection of members, and how members might be added, terminated or exit. The State of Michigan does not require an Operating Agreement to be filed in order to form an LLC, but rather this is a private document which governs the relationship of the members and may be amended by the members from time to time.

By default, a single-member LLC is taxed as a sole proprietorship and a multi-member LLC is taxed as a partnership. But the member(s) may elect to have the LLC taxed as an S-Corporation or a C-Corporation. Tax election is separate from entity choice, and so members should consult a tax attorney or CPA with any questions and to maximize tax planning opportunities.

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FAQs

Frequently Asked Questions

Top Business Law Questions

Business is already complicated without having to endure legal headaches. Contact our business attorneys today! 

 

How many Investment properties can I put in one Limited liability company?

As many as you’d like to put under one corporate “shield.” There are other considerations you should take before doing so, such as the locations of the properties, or the property types.  Consult with a real estate and business attorney before you proceed.  

What is an operating agreement?

An operating agreement is a contract that sets forth the responsibilities between members of a limited liability company.  Having an operating agreement is required if you are doing business and want the legal protections afforded by the state in which you are incorporated. 

Do I really need a written agreement when opening a business with a family member?

Yes. Setting out your business goals and expectations with your business partner in writing is a good idea to protect against disputes and problems at a later date.  Written agreements memorialize the oral representations made between parties. Nothing is more disappointing (or expensive) than when family members or friends fight over a business arrangement and there is nothing  but a verbal agreement for the parties to rely upon. 

What is better to form, a limited liability company or a c-corporation?

Which corporate formation one should select depends on the number of business owners, their legal needs, and their tax status. Consult with a business attorney beforehand.

Should I sign for a business loan as an individual?

If your business is taking out a business loan and you sign for the loan individually, you essentially become a ‘co-signor’ or ‘guarantor’ for your company’s loan obligation.  Consult with a business attorney before you endorse any lending documents to avoid further and unnecessary legal and financial liability. 

Why do I need a corporate resolution to close on an investment property that I own free and clear?
When it comes to doing any business on behalf of a company, the owners or members of the company must provide a corporate resolution. These are typically needed to transact any corporate business, such as opening a bank account, signing a contract, and signing a lease or deed. Title companies want to ensure that the person who is conveying the property on behalf of the company has authority to do so, even if the company is owned by a single person or entity.
I want to make my daughter 50/50 owner in my investment property LLC. Is this a good idea?
You can easily convey the properties from yourself to your company. A limited liability company is a legal entity and it can receive the deeds without any issue. There are, however, tax considerations that you will need to further investigate. Generally, if you transfer a property that you hold on your own over to your single member LLC, there is no taxable gain on the transfer. However, when your daughter becomes a 50% member of your LLC, then she has a taxable gain that is equal to 50% of the value of the properties, since she is a 50% owner of your LLC. I suggest that you consult a CPA who regularly works with real estate investors.

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