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Santa Cruz Business and Commercial Law Blog

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.

Setting up and operating a California corporation

A corporation is a legal entity used by many businesses in California. It is owned by its shareholders and managed by a board of directors who set policy and appoint individuals to manage the day-to-day affairs. Most corporations pay taxes on earnings. Shareholders also pay individual income taxes on dividends received. One of the major advantages of a corporation is protection from personal liability for its shareholders.

A California business that wants to incorporate must file Articles of Incorporation with the Secretary of State's office and pay certain fees. Corporations can be structured as profit or non-profit. An example of a non-profit corporation might be a religious organization. Although out-of-state entities can register a corporation in California, additional steps are required to do so. In addition to other forms required, foreign corporations must furnish evidence certifying the corporation is in good standing with the state wherein it was originally incorporated.

The importance of having a will as part of an estate plan

California residents may be interested in an article discussing some of the reasons why writing a will is an important part of proper estate planning. The will allows a person more control in handling their estate, rather than leaving it to the courts.

A will is the cornerstone of many comprehensive estate plans. However, surveys show that 71 percent of people under 35 do not have one, along with 41 percent of baby boomers. Without a will, it is up to the courts and state law to settle a person's affairs after they die. With a will, however, how a person's assets are distributed and other affairs are tied up can be done in the way that they desire.

What is an LLC?

California business owners often want to know what an LLC is and whether that form of entity would be the best legal structure for their business. An LLC is a limited liability company, with its owners being classified as members rather than as shareholders. One of the primary benefits of an LLC, as its name suggests, is that it provides liability protection for its owners, as is also the case with a corporation.

Unlike a corporation, an LLC does not have bylaws but is managed according to an operating agreement. The manager is usually required to be a member. LLCs are extremely flexible in the way they can be structured. For tax purposes, they can be set up like a corporation, where the entity pays taxes on net income, or they can be designed more like a partnership, where profits and losses are passed through to its owners who are taxed at an individual level.

Tips for those developing an estate plan

Creating plans regarding the distribution of one's assets can be a daunting and time-consuming endeavor for many individuals. However, because of the current state of affairs in California, if a person dies without creating such a plan, his or her friends and family members may be faced with some difficulty. An estate attorney might be able to help a client create a strategy that considers a number of different factors.

The benefits of drafting an estate plan are numerous. In addition to providing a way for a person to avoid excessive tax penalties on certain assets, an effective plan might also streamline the estate administration process for any beneficiaries. A plan might also help an estate save money and could provide additional privacy to the person devising the documents.

Articles of incorporation creates legal foundation of corporation

California businesses wanting to incorporate will need to create several documents, some of which will be filed with the state. The articles of incorporation establish the legal foundation of the corporation and contain the name and purpose of the company, the entity who will serve as registered agent and information concerning ownership shares.

The name of the corporation can be just about anything the owners desire as long as it is unique. This can be determined by a search of the names listed in the state's database. The name will usually end with "Inc." but it could also end with "Incorporated" or "Corporation." The purpose does not have to be very specific. In most cases, it can be as simple as saying that the company will engage in any lawful business.

Do I need a living trust in California?

California residents who are embarking upon their estate planning may be interested in learning what a living trust is and when they are needed. This type of trust allows someone to retain control over their assets during life and avoid probate after their death.

A revocable living trust involves moving assets into the trust, which can then continue to be used for the benefit of their owner. This person often acts as the trustee as well, retaining control of their assets. If the trustee is incapacitated at some point during their lifetime and is unable to administer the trust, another person is usually named in the trust to perform these duties.

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