7.2 Selecting a Form of Ownership

• Library: Estate Planning in Virginia (Virginia CLE) (2018 Ed.)

7.2 SELECTING A FORM OF OWNERSHIP

7.201 In General. The closely held business owner's choice of entity may expand or restrict the options available both for lifetime and estate planning. There are several forms of ownership from which closely held business owners can select. The reader can find a detailed discussion of the advantages and disadvantages of each in Choosing a Virginia Business Entity. ¹ This discussion is limited to estate planning considerations.

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7.202 Goals. A primary goal of estate planning involving closely held businesses is the transfer of the future appreciation of assets to younger generations and the retention of control over the management and operation of the company by the older generation. In addition, families will want to achieve limited liability and reduced taxes. The structure of the entity may also affect minority-interest and lack-of-control valuation discounts. The following paragraphs set forth the advantages and disadvantages, from an estate planning standpoint, of four common types of business entities.

A. C Corporations. ²

1. Advantages. A C corporation may have multiple classes of stock, including voting and nonvoting stock, which may allow for distribution and liquidation preferences. This will provide valuation discounts to minority and nonvoting shares and keep management and control of the company in the hands of the older generation. In addition, C corporations may exist in perpetuity. Creditors of a C corporation shareholder have rights to the stock of that shareholder only.

2. Disadvantages. A majority or controlling interest in a corporation may be subject to a valuation premium. Furthermore, a shareholder has no right to have his or her interest redeemed unless it is provided for in an...