Posted June 16, 2024 by James Billings
Today, we’ll delve into the fundamental differences between corporations and business trusts, especially focusing on the maintenance requirements and the paperwork involved.
Understanding State Sanctioned Entities: Corporations, LLCs, and Partnerships
State-sanctioned entities such as corporations, LLCs, and partnerships come with various requirements mandated by the Secretary of State. You might be familiar with some of these processes, which include name registration, listing of directors or managers (in the case of an LLC), and appointing a resident agent. These entities require meticulous annual record-keeping and, in states like California, the payment of a franchise tax to the Franchise Tax Board, irrespective of the business’s profitability.
Annual Maintenance and Fees
For corporations and LLCs, there is a consistent need for annual filings, updating paperwork, maintaining a resident agent, and paying various fees, including the franchise tax. This ongoing maintenance is a significant aspect of operating such entities.
Advantages of Business Trusts
In contrast to the aforementioned entities, business trusts offer a more streamlined approach. Once established, a business trust requires no registration with the Secretary of State, no franchise taxes, and no mandatory record-keeping. This type of organization allows for greater flexibility and less administrative burden.
The Visibility Factor
A major difference between corporations/LLCs and business trusts is visibility. Registered entities are easily searchable in the Secretary of State’s database, exposing details like the names and contact information of those involved. This visibility can increase risk, whereas business trusts offer more privacy, keeping such details off the public record.
Summary: Why Choose Business Trusts?
To summarize, while corporations and LLCs are bound by state regulations and involve significant maintenance, business trusts provide a low-profile, low-maintenance alternative for holding title to assets such as real estate or antiques. They allow for asset protection without the visibility and administrative complexity of state-sanctioned entities.
Conclusion
We advocate for the use of trust structures for asset management due to their benefits in terms of privacy and ease of maintenance
Get your free copy of the LLC versus Business Trust comparison chart here.
If you have any questions, please contact James Billings, founder and owner of TrustArte, at james@trustarte.com or 619-537-8625. Visit my YouTube channel for video content.