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Santa Cruz Business and Commercial Law Blog

The benefits of using trusts in an estate plan

California residents who are thinking about estate planning often have a false assumption that trusts are financial tools designed for millionaires. The truth is, anyone with at least $100,000 in assets may want to consider the benefits of setting up one or more trusts as part of their estate plan. When a large amount of a person's assets are held in real estate, an art collection or a business, a trust may be especially beneficial.

By placing assets in a trust, individuals can be assured that the assets will be distributed to the chosen beneficiaries upon their death without the need for the beneficiaries to go through the probate process. In addition to avoiding the time and expense of probate, a trust can in some cases reduce gift and estate taxes that often accompany an inheritance. A trust will also allow the details of family assets to remain private, as opposed to the public probate process.

Avoiding the biggest mistakes when selling a business

California businesses who are looking to make a sale may be interested in an article detailing some big mistakes that business owners make. Failing to properly prepare to sell a business to a prospective buyer can lead to increased difficulty in making the sale. One expert looked at several of the biggest mistakes that sellers often make.

One of these is having unrealistic expectations about the worth of the business on the market and its ability to sell. Seriously overvaluing the company can prevent a business from selling at all. This generally involves the use of an objective third party who can look at the real value of the business. Failing to find the right time to make the sale is another common mistake. If there is no market for purchasing that business at the time of the sale, then it will be very difficult to make a transaction happen.

How many types of mergers are there?

The structure of the business world is always changing with the merging of companies. Some business owners in California may not realize that there are five main types of mergers, which are termed according to the relationship and economic function of the companies, as well as what the companies intend to accomplish with the transactions.

One type of merger is a vertical merger, which occurs between two businesses that provide different services or goods that are used in the creation of one finished product. The businesses operate at different levels of the supply chain within an industry. Often, the goal of such mergers is to increase the synergies that the businesses produce by operating a more efficient company. A horizontal merger involves two companies that operate in the same industry and offer the same services and goods.

How a community's zoning is categorized

Most cities in California and throughout the nation are categorized into zones. There are many types of zoning categories, ranging from residential and commercial to historical and rural. Some communities that implement a variety of new zoning classes employ combination zoning. Communities that wish to preserve structures older than fifty years employ historical zoning. This category serves to protect qualifying historical buildings and homes through certain regulations.

Most real estate properties used for business purposes are classified under commercial zoning. The type and size of the business will determine the type of commercial zone the business will fall under. There are commercial zoning laws in place that forbid certain establishments, such as adult entertainment businesses, from operating nearby churches or schools. Moreover, there are permitted and accessory uses that may apply to some businesses seeking zoning exceptions. Other zoning classifications similar to commercial zoning are industrial, agricultural and rural zoning. Industrial zoning is appropriate for large storage facilities, manufacturing plants and industries with high noise concentrations and other environmental issues. For farming locations associated with the agricultural industry, agricultural zoning is utilized. This zoning class protects farming districts from turning into residential developments. Rural zoning pertains to land designated for ranches and farms.

Refinancing commerical mortgages

Business owners in California may benefit from learning more about to how refinance a commercial mortgage. People interested in initiating the process are advised to submit the required information to the lender expeditiously since the approval process may take a while to complete. Borrowers are also advised to identify the upfront costs associated with any loans that are under consideration. Business owners and operators may be compelled to refinance a commercial mortgage for a variety of reasons.

For many, refinancing a commercial mortgage may be a viable option for improving cash flow. Some consider refinancing as a means to lowering long-term interest rates, while others may be attempting to avoid a balloon payment that is approaching. Identifying long-term goals and considering the different reasons for refinancing is usually the first step in the process. Once a decision is made to move forward, the next step is to begin gathering and preparing the appropriate documentation required to provide the lender with data on the business's operations.

S corporations in California

When a new business is deciding what type of entity to choose for formation, some may consider forming an S corporation due to its specific tax advantages. Unlike other types of business structures, the profits and losses from an S corporation can pass through the business to the shareholder's personal income tax return, meaning that the business is itself not taxed.

A shareholder who works at the S corporation must pay him or herself reasonable compensation for the work he or she performs. Reasonable compensation is what the person should be paid for the fair market value of the services provided. If the person is not reasonably compensated, the IRS may reclassify other corporate earnings as the employee's wages.

Limited partnership formation

California entrepreneurs may be interested to know what a limited partnership is and if it is right for their business. A limited partnership is a business structure that involves two types of partners: a limited partner and a general partner. A limited partner is a partner who provides capital to the business but does not manage the business in any way and is not liable for partnership obligations. A general partner is one that manages the business, does all of the decision-making and is liable for partnership obligations. There must be at least one of each type of partner for a limited partnership to be formed. A California-owned business must file a Certificate of Limited Partnership form with the Secretary of State's office.

Foreign-owned limited partnerships are partnerships that formed outside of the state of California. In order for a foreign-owned business to register as a limited partnership, a Foreign Limited Partnership Application for Registration form must be filed with the California Secretary of State's office for statutory compliance review. A Certificate of Registration will be given to the business once the Secretary of State's office is finished with its review.

Understanding California general partnerships

A general partnership differs from other types of business entities in a number of ways. One of the primary advantages of a partnership is in its flexibility. Instead of having bylaws, partnerships have agreements, which can be written or oral, that dictate how the company is to be managed. California partnerships may be registered with the Secretary of State when a business's entity selection discussions have been completed. Those documents are able to place restrictions on authority, such as who is allowed to enter into transactions on behalf of the partnership. After approval of the documents for statutory compliance, the Secretary of State will issue a Certificate of Registration.

Partners are jointly and severally liable, meaning that each partner is liable for any and all financial and legal obligations and for any wrongdoing by one or more parties involved in the venture as long as those partners are acting in the ordinary course of business. Also, unlike corporations, partnerships do not pay taxes at the partnership level. Any profits or losses flow to the partners who include them on their individual income tax returns.

Examining the tax implications for certain types of estate assets

California residents may be interested in some information about how different types of assets are taxed. Depending on the tax situation for those assets, holding onto them can prove to be a large benefit while it might be more beneficial to sell other types of assets.

According to a recent article, different types of assets are subject to different types of taxation when placed into an estate. Some types of property are taxed more when passed on to an heir. Many times, this is due to a concept known as a stepped-up basis. This means that when the heir inherits the asset, the initial value of that asset is stepped up to the value at the time of inheriting rather than remaining at the value of its initial purchase by the previous owner. In practical terms, this usually diminishes income tax burden for that particular asset depending on the circumstances.

Anna Nicole Smith's estate still battling for inheritance

A federal district court judge in California has dismissed a request for sanctions against the estate of the late son of a late oil tycoon who died with a net worth of $1.6 billion. On the losing side of the ruling was the estate of Anna Nicole Smith who had been married the oil man. The procedural history of the case is complex and has seen a large amount of coverage in the media.

Following the man's death, his will was put through probate in Texas, and federal court proceedings began in California in 1996 when Smith filed for bankruptcy. She was awarded $475 million, but that award was reduced to $88 million on appeal. The case went to the U.S. Supreme Court twice and looked to be at an end after the second of the court's rulings. In May 2013, however, a California district court, citing unethical conduct, ruled that sanctions were in order against the estate of the son even though both the son and Smith had already passed away.

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