Business Restructuring & the Impact on Licensure 

In light of the new tax law, which President Trump signed into law on December 22, 2017, many business owners are contemplating restructuring to take advantage of the incoming corporate income tax reduction.  Inc Magazine notes “hundreds of pass-through businesses are planning to re-organize in 2018, in order to access the lower corporate tax rate of 21 percent.”[1]  The new maximum corporate tax rate of 21 percent is a departure from the 35 percent rate currently imposed on C Corporations.  Inc Magazine estimates that most U.S. small businesses currently do not qualify for the reduced corporate tax rate as they are structured as limited liability companies or S corporations. [1]

In addition to the tax break for C Corporations, the new tax bill will also reduce the tax burden on pass-through businesses, such as LLCs and Partnerships.  To help equalize the tax rate reduction among businesses, the tax bill temporarily allows pass-through businesses to deduct up to 20 percent of their pass through business income. Anti-abuse measures were included to ensure owners of eligible business operations claim the 20 percent deduction and ban high-income earners from reclassifying their income as pass-through income to utilize the deduction.   Income eligible for the full 20 percent deduction is also capped at $315,000 for married couples and $157,000 for individuals.[2]  While there is some tax relief in the law for those pass-through firms, many could access the permanent cut by converting to full-blown C corporations.[2]

LicenseLogix helps our clients form all types of business structures whether it be LLCs, corporations, non-for-profits, or sole proprietorships.  We have the knowledge and expertise to quickly form your business enterprise in any state.  We also regularly assist our clients with their transactional license needs when a business change event occurs.  Conversion from an S Corporation to a C Corporation may not have a direct impact on all of your business licenses; however, transactional shifts such as name changes, entity conversion from a LLC to a corporation, officer changes, or domestic state changes may have a significant impact on a company’s license holdings across all markets and all license categories.

For example, the City of Santa Monica, California requires licensees to notify the City of any changes to their business that affects their license, including but not limited to: a change of legal entity name or DBA; an expansion or change of locations; a change to entity owners or officers; or updated business activity or contact information.  Failure to alert the issuing authority as to business changes, may result in fines and penalties.  The City of Santa Monica reserves the right to issue penalties for license non-compliance. 

LicenseLogix is repeatedly engaged by our clients to assist with large-scale transactional license updates that arise from business transitions.  Our scope of engagement is varied and broad including corporate name changes, officer/owner changes, entity conversion, re-domestication, and relocation spanning all regulated industries.

LicenseLogix is uniquely poised to assist with the downstream effects a business transition imposes on licensing.  We deploy a full service team of researchers and project managers to research the process and identify a strategy to proceed with the update in the most time efficient and cost effective manner.  Our Account Services team is exceptionally familiar with the requisite filings to accomplish license updates and can execute these submissions in high volume. 

Let LicenseLogix help you navigate through the complex business transitions.  Contact us today to for a free quote.   

***Please note, LicenseLogix cannot provide tax guidance and this information should not be substituted with qualified tax advice from a tax professional.*

 

[1] Under New Tax Law, Should Your Business Restructure as a C Corporation?

[2] Tax Bill's 'Pass Through' Rule Will Aid Wealthy, Not Workers: Critics