Texas: Business Entity for a Gifted Ranch
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Kim, Jen and Dan were given a ranch just outside Kerrville, Texas. The gift included the cattle, a small stockyard, and a meat processing plant all on the ranch property. Kim, Jen and Dan each want to continue working in their other businesses, but they also want to operate the cattle raising and meat processing business.
Their objectives are to:
(i) avoid as many restrictions or formalities of organization and complexities of managing the business;
(ii) avoid federal taxes on the entity to the extent that they reasonably can;
(iii) limit their personal liability for debts or acts in the cattle raising and meat processing business; and
(iv) limit transferability of their interest to strangers.
Kim, Jen and Dan come to you seeking your advice as to which would be the better entity to operate the cattle raising and meat processing business consistent with their stated objectives: (i) a Texas business corporation; (ii) a Texas general partnership; or (iii) a Texas limited liability company. In view of the stated objectives, which of the three business entities would you recommend? Explain fully, including the strengths and weaknesses of each.
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Solution Summary
The Solution examines the options available for a business entity based on the objectives of the partners involved.
Solution Preview
https://www.sos.state.tx.us/corp/businessstructure.shtml
(i) avoid as many restrictions or formalities of organization and complexities of managing the business; (ii) avoid federal taxes on the entity to the extent that they reasonably can; (iii) limit their personal liability for debts or acts in the cattle raising and meat processing business; and (iv) limit transferability of their interest to strangers.
The entity that is most appropriate for this posting is the Texas limited liability company as this entity would provide the company with the desired ability to avoid many of the tax restrictions associated with managing a business while also limiting the liability that is held by members of the Texas LLC. This entity in the state of Texas is akin to an S corporation that doesn't result in tax restrictions that the federal government's IRS imposes. In addition, the ability to possess the powers that are afforded to a corporation and a partnership will benefit the company exponentially. ...
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