A Very Valuable Re-Org

A mid-sized law partnership discovers that a complex new structure is easy – and worthwhile – to implement in the hands of the right professionals

Two partners were successful owners of a mid-sized personal injury law partnership. Each year their personal income (which was quite substantial) was reported on their personal income tax return, which meant they were each losing roughly 44% of their income to taxes. They knew something needed to change, but were worried about how complex that change could be.

We suggested a re-org.

If done successfully, the partnership would be split into three corporations: one main corporation, and two smaller law corporations for each partner. Each year, the company’s profits would be split between the two corporations. Each partner would draw a salary, and that remained would only be subject to the small business taxation rate. This excess income could remain in the corporation until the partners wished to withdraw it an organized way.

It took almost two years – and hundreds of thousands of unnecessary dollars in taxes paid – to decide to give the proposed structure a try.

An additional tax expert was brought on do manage the complexity of the task. He was responsible for ensuring all the necessary paperwork and contracts were done to the letter. The team worked diligently over a couple of months, and sorted out all the required changes, with very little work falling to two partners.

In the first year of the new structure, each partner paid almost 50% less in taxes than they had in the previous year.

The company was also structured to include the potential for two other law corporations, should two partners wish to bring on new partners. At that time, each partner was saving roughly 20% of their salary from taxation. They’re able to invest that extra money and watch it grows at that time. The new structure is well-organized enough to protect their assets and allow for up to two new partners in their business.

Losing too much of what you make?
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