Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for June 15th, 2004

Business Pre-Nup

Posted by taxguru on June 15, 2004

As I’ve said on many occasions, going into business with someone is very similar to getting married. It still amazes me to see how many people enter into business co-ownership with someone they barely know. What’s even more frightening is how few people actually put the terms of their business relationship into writing. Consider it a pre-nuptial agreement for a business.

Spelling out the terms of the relationship, especially how to terminate it, is a lot easier to do up front when everyone is on good terms. The alternative is to run up a lot of legal bills fighting over a split. It’s a classic “pay me now or pay me later” scenario. The legal fees to draw up a basic partnership or management agreement in the beginning are a drop in the bucket compared to having to pay for years of litigation when things go bad.

While not all marriages will end in divorce, every business relationship will eventually come to an end, even if it’s just from the death of a co-owner. How that person’s share is to be handled is a very important issue that needs to be put into writing when the business relationship begins.

This was prompted by the following email I received recently:

Re: bad partner in s corp.

just wondering if you had any advice for ridding my partner in an s corp we formed. we are equal in amount of shares owned, he is lazy, does nothing and has the worst work ethic I know. Please help.

My reply:

I’m assuming that you didn’t have a formal written partnership or management agreement drawn up at the beginning that would have addressed this situation.

It’s basically going to involve negotiating with your co-owner. There are several optional strategies that could be used, based on the details of your particular situation.

You will need to consult with an attorney or corp tax pro to see what would work out best for you. I can’t do any more in a medium such as this. Ideally, you and your co-owner should both consult with the pro; kind of like marriage counseling.

Good luck.

Kerry Kerstetter

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Posted by taxguru on June 15, 2004

Federal Bankruptcy Court Permanently Bars “National Audit Defense Network” From Selling Tax Scams and Preparing Tax Returns – All 640,000 of the people stupid enough to fall for this scam will be paying the price as well.

Surprise! Most senators are wealthy – The gap between the Washington Royalty and the average American just keeps growing farther and farther from our founding fathers’ goal of having a constant rotation of average everyday people serving in office and then returning to their normal lives.

Many Senators Have Stakes in Large Companies. Firms Would Benefit Under Tax Bill – What conflict of interest?

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