Business Organization Alternatives Organization Alternatives n Sole proprietorship

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Business Organization Alternatives

Business Organization Alternatives

Organization Alternatives n Sole proprietorship n General partnership n Limited partnership n. Corporation q

Organization Alternatives n Sole proprietorship n General partnership n Limited partnership n. Corporation q Sub S q Regular n Limited liability company

Examine n Advantages and disadvantages n Tax issues n Transfer of business interest

Examine n Advantages and disadvantages n Tax issues n Transfer of business interest

Sole Proprietorship n. Advantages: q. Simple q. Complete control q. Fewer record/reporting requirements

Sole Proprietorship n. Advantages: q. Simple q. Complete control q. Fewer record/reporting requirements

Sole Proprietorship n. Disadvantages: q. Limited capital q. All management & liability q. Owners

Sole Proprietorship n. Disadvantages: q. Limited capital q. All management & liability q. Owners die: business terminates q. Estate planning limitations

General Partnership n. Advantages: q. Easy to form q. No income tax is paid

General Partnership n. Advantages: q. Easy to form q. No income tax is paid by partnership q. Income tax benefits flow through to partners

General Partnership n. Disadvantages: q. Liability for actions of partner q. Conflicts between partners

General Partnership n. Disadvantages: q. Liability for actions of partner q. Conflicts between partners q. Management control

Suggested Partnership Provisions n Who are the partners n Business name and date formed

Suggested Partnership Provisions n Who are the partners n Business name and date formed n Purpose of the business n Duration n Capital contributions and withdrawal provisions n Management, time, vacations, and salary n How are decisions made?

Suggested Partnership Provisions n How are profits and losses shared n Partner rights and

Suggested Partnership Provisions n How are profits and losses shared n Partner rights and obligations n What assets are owned by partnership versus on loan? Who owns what? n Termination provisions n How are disputes resolved?

Limited Partnership n 1 or more general partners n 1 or more limited partners

Limited Partnership n 1 or more general partners n 1 or more limited partners q. Limited liability q. No management n. Estate planning issues for heirs of limited partner(s)

C Corporations n. Advantages: q. Limited liability q. Easily transferable q. Death does not

C Corporations n. Advantages: q. Limited liability q. Easily transferable q. Death does not terminate

C Corporations n. Disadvantages: q. Establishment cost q. Franchise tax q. Formality – Board

C Corporations n. Disadvantages: q. Establishment cost q. Franchise tax q. Formality – Board of Directors q. Possible income tax problems double taxation q. Borrowing ability of business

S Corporations n. Advantages: q. Limited liability q. Easily transferable q. Death does not

S Corporations n. Advantages: q. Limited liability q. Easily transferable q. Death does not terminate q. Tax benefits pass to shareholders

S Corporations n. Disadvantages: q. Establishment cost & franchise tax q. Formality: board of

S Corporations n. Disadvantages: q. Establishment cost & franchise tax q. Formality: board of directors, etc. q. Limited number of permissible shareholders & only 1 stock class q. Borrowing ability of business q. Only transfer stock to eligible shareholder (another corp or partnership)

Formality n Must have name and certificate of incorporation n Capital must be transferred

Formality n Must have name and certificate of incorporation n Capital must be transferred to corporation n Must elect directors n Must have business meetings and keep minutes n Must create a set of by-laws

Limited Liability Company n. Classified as a partnership or corporation n. Limits liability n.

Limited Liability Company n. Classified as a partnership or corporation n. Limits liability n. Articles of organization with Secretary of State n. Taxation issues n. Fringe benefits

Other Tax Issues n Payroll - $150/yr for 1 employee or total to all

Other Tax Issues n Payroll - $150/yr for 1 employee or total to all is >$2, 500: must report payroll taxes n Self Employment (SE) Tax 15. 3% + 2. 9% = 17. 2% total up to $106, 800 n Hobby loss issue

Hobby Loss n Business like manner of operation n Seek advice n Amount of

Hobby Loss n Business like manner of operation n Seek advice n Amount of time spent n Value of the assets growing n Profit motive n Profit and loss history n Other income n Personal pleasure and recreation

Conclusion n Consider what type of entity best fits needs n Consult an attorney

Conclusion n Consider what type of entity best fits needs n Consult an attorney and/or tax specialist n Seek information from others who are using various types of business organizations