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I bought a property by myself 4 years ago. Now I want to make a joint tenancy with my brother. Would CA law bar this move?
I own a 100% interest in an investment property that I bought 4 yrs ago. I want to make a joint tenancy with my brother. I heard that if we did not acquire our interests at the same time, which we have not, then we cannot form a joint tenancy. Is this true?
Response:
You can deed the property to the both of you and create a joint tenancy, which requires the "unities" of time, title, interest and possession. You don't indicate whether you are selling or gifting the interest. There may be an increase in the secured property taxes if you are selling the interest and the value of the one-half interest being transferred is greater than it was at the time you acquired the property.
This answer does not constitute legal advice, nor does it create an attorney/client relationship. If you are seeking legal advice upon which you intend to rely, you should hire competent counsel familiar with this area of the law in your locale.
SHOULD YOU FORM A LIMITED LIABILITY ENTITY FOR YOUR BUSINESS?
Business owners should carefully consider the form of
entity chosen to operate their businesses.
Typically, businesses are operated in one of the following forms:
·
Sole
proprietorships
·
General or
limited partnerships
·
Corporations
(including Subchapter "S" corporations)
·
Limited liability
companies
Liability Issues
Sole proprietorships and general partnerships do not afford business owners any
protection of their personal estates (i.e., homes, automobiles, bank accounts
and stock or investment portfolios) from claims of business creditors. General partners in limited partnerships
fall into the same category. While
limited partners in limited partnerships are afforded protection from business
creditors, in order to be afforded that protection, limited partners must take
a reduced role in the management of the business.
While some risks of doing business can be mitigated by
a general business liability insurance policy with adequate policy limits, such
policies typically only protect business owners from tort liability and do not
protect business owners from contract claims of vendors or customers. Policy premiums for more comprehensive
insurance coverage are also typically quite high.
The answer for many business owners may be the
creation and proper maintenance of a limited liability entity which
serves to protect the personal estates of its shareholders or members from
liability to business creditors.
Until the advent of limited liability companies,
corporations were the vehicle almost exclusively used by businesses to
insulate the estates of their owners from liability to business creditors.
Corporate Taxation
As an attractive tax benefit, many small business
corporations make a tax election that the entity be taxed as a proprietorship
or partnership for income tax purposes (a Subchapter "S"
corporation election). There are
certain limitations on Subchapter "S" corporations which may
disqualify that form of entity from consideration, as follows:
·
The corporation
must be a calendar year taxpayer rather than electing an alternative fiscal
year.
·
The corporation
may issue only one class of stock which limits flexibility in its capital
structure and prohibit varying voting rights among shareholders.
·
A Subchapter
"S" corporation, unlike a corporation which does not elect Subchapter
"S" status, may "pass through" profits and losses to the
shareholders and pays no corporate income tax, which may be a very desirable
objective from an income taxation standpoint.
·
If the
corporation does not make a Subchapter "S" election, it is considered
a "C" corporation.
While "C" corporations are taxed on profits at the corporate
level and again on "dividends" at the shareholder level, the tax on
corporate profits may be mitigated through the use of reasonable officer
compensation and bonuses. "C"
corporations may elect fiscal years other than a calendar year and can issue
more than one class of stock and, thus, have greater flexibility in determining
corporate capital structure and shareholder voting rights.
Corporate Formalities
In order for a corporation to be properly formed and
maintained, the corporation must do the following: #File Articles of
Incorporation
·
Adopt corporate
Bylaws
·
Conduct regular
meetings of the shareholders and Board of Directors and create minutes of those
meetings
·
Open a corporate
bank account
·
Issue stock and
advise the California Department of Corporations that stock is being issued
·
File annual
information statements with the California Secretary of State identifying the
officers, directors and principal place of business ($25 fee)
·
File annual
federal and state income tax returns
·
Pay an annual
"franchise tax" (state income tax deposit) to the California
Franchise Tax Board (currently $800) toward the payment of California state
corporate income taxes (NOTE: Subchapter
"S" corporations must pay the franchise tax even though the
corporation is not subject to income tax at the corporate level.)
·
The cost of
incorporating either a Subchapter "S" or "C"
corporation is approximately $2,000, which includes all filing fees paid to the
California Secretary of State and California Department of Corporations and
includes an initial $800 franchise tax deposit paid to the California Franchise
Tax Board. This deposit is in the nature
of a "security deposit" and does not constitute the state
income tax deposit for the first year of corporate operations.
Limited Liability Companies ("LLCs")
For the last 20 years California businesses have been
able to operate as limited liability companies.
Limited liability companies share the limited liability protection of
corporations and also afford the entity "pass-through" tax treatment
similar to Subchapter "S" corporations. Limited liability companies offer greater
flexibility in relation to the capital structure and voting rights of the
"members", features which are not available to a Subchapter
"S" corporation. Limited
liability companies must be a calendar year taxpayers, similar to Subchapter
"S" corporations. Certain
partnership tax rules also apply to limited liability companies which may
benefit the entity and which are unavailable to Subchapter "S"
corporations.
Like Subchapter "S" corporation, a limited
liability company must have at least one member (the equivalent of a corporate "shareholder"). "Passive loss" taxation rules are
more restrictive than passive loss rules applicable to shareholders of a
Subchapter "S" corporation.
The cost of creating and maintaining a limited liability company may be
marginally greater than the cost of creating and maintaining a corporation,
depending upon the complexity of the entity's capital structure and the
management provisions contained in its "operating agreement".
In order for a limited liability company to be
properly formed and maintained, the "LLC" must do the following:
·
File Articles of
Organization (Form LLC-1) #Adopt an
operating agreement
·
Open an LLC bank
account
·
File annual
Statements of Information with the California Secretary of State identifying
the Members, Managers and principal place of business (Form LLC-12) ($20)
·
File annual
federal and state income tax returns
·
Pay an franchise
tax to the California Franchise Tax Board (currently $800).
NOTE: For limited liability companies with substantial revenues, California imposes a tax on net income based on a sliding scale, which could result in additional fees in excess of the minimum franchise tax of $800.
Conclusion
Based on information which you furnish that is
specific to your business, we will be able to give you more detailed
information and advice concerning the suitability of these entities for use in
your business. Please contact us if you
have questions or wish to schedule a free thirty-minute consultation.
Transmission of the information is not
intended to create and receipt does not constitute an attorney-client
relationship between the sender and receiver.
Shaun K. Boss, APC does not provide any
warranties whatsoever with respect to any hyperlinks found throughout this blog
site.
Readers should not act upon this
information without first seeking professional legal counsel. Do not send us
information until you speak with us and have obtained authorization to send that
information to us.
Shaun K. Boss, APC's legal practice is limited exclusively to representation of clients in the state and federal courts of California, USA. While the firm represents clients from other states and countries in transactional matters, in the event this communication does not conform to the laws and regulations of any state or country in which it may be received, the firm will not accept legal representation based on this communication from a person or entity located in such a state or country. If you have questions regarding this site, please contact us at shaun.bosslaw@sbcglobal.net.
