Business reorganization project - by Jon Andrews, CPA, P.C.
ABC Corp. was established in 1979 as a C corporation manufacturing and
selling oilfield products. Initially, it plodded along making $700K -
$800K in annual sales, with about a 30% gross margin, and overhead that
was roughly equivalent to the gross profit so that it did not have any
significant net profits.
From 1995 to 2002, the company grew to $5,000,000 in annual sales, with a 60%
gross margin, and overhead that consistently left a 20% bottom line. This
company had one shareholder and no debt. Over the same time period, the company
matured significantly so that by 2002, the growth curve had leveled out and the
company consistently generated substantial cash flow on a monthly basis. While
this represents an enviable situation, it also presented the company and sole
shareholder with several problem areas - double taxation on corporate profits,
inability to continually withdraw the cash, potential for accumulated earnings
issues, estate issues, Texas franchise tax issues, and more.
To help resolve those problems, we did a complete reorganization of the
business structure. Below is an outline of the process:
Establish a limited liability company (LLC1) with the sole shareholder (SH)
of the company being the sole member of LLC1
Create a limited partnership (LP1) with LLC1 as the general partner and SH
as the limited partner
SH contributes assets, including his stock in ABC, to LP1 in exchange for
his limited partner interest
Establish a limited liability company (LLC2) with SH being the sole member
Liquidate ABC with LP1 receiving all of the assets and liabilities in
exchange for all of its stock
Create a limited partnership (LP2) with LLC2 being the general partner and
LP1 being the limited partner
LP1 contributes certain assets and liabilities to LP2 in exchange for its
limited partner interest
LP2 operates the business that was formerly ABC Corp.
LP1 owns most of the assets previously owned by SH, certain assets
previously owned by ABC, and the limited partner interest in LP2
After completing the above, the cash flow created by the business can be freely
distributed as desired with no double taxation, SH has the ability to structure
his estate, SH has better ability to ensure continuity of management for the
business, the business is no longer subject to the Texas franchise tax, and
there are no worries about accumulated earnings tax.
As a result of this project, the company and shareholder have greater
profitability, greater flexibility, and a lesser overall tax burden.
If you feel like you and your business could benefit from a review of your
organization, please click
to download our initial questionnaire. After it is completed, email it to us for
a detailed proposal customized to your needs.
The example projects discussed in this site are actual projects that have
been completed. The client names have been deleted to protect their privacy. We would be happy to discuss how these, or other ideas, apply
to your specific situation.
To Your Financial Health
Useful tools :: Best Offers:
Quickbooks conversion from Peachtree
Complete conversion of bookkeeping system from Peachtree to Quickbooks.
Business reorganization for tax, management, and estate planning purposes.
Texas divorce case
Community and separate property tracing.
Business and investment reorganization for estate planning purposes.
Texas franchise tax reduction
Reorganization to reduce franchise taxes.
Valuation of business enterprise.