Selecting the Right Structure for Your Business

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Selecting the Right Structure for Your Business
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Getting Started

• How should you operate and structure your
  business?
• It can be difficult, so ask for help.
• Consult with a CPA to learn
• Filing and compliance issues
• Tax benefits and detriments

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Tax and Non-Tax Issues to Consider

• Ownership and continuity changes
• Legal liability protection
• Federal and state income taxes
• Social Security taxes
• Other factors

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Structuring for Success

• Sole Proprietorship
• Single Member Limited Liability Company
• Partnership General and Limited
• Corporation S or C
• Limited Liability Company

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Sole Proprietorship

• One-person business
• Not registered with state as limited liability
  company or corporation
• Some states require license or permit

• Owner is personally liable
• Simplest for tax purposes
• Business ceases to exist with death of owner

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Single Member LLC

• One-person business
• Registered with state as limited liability
  company
• Some states require license or permit

• Owner may not be personally liable
• Simplest for tax purposes
• Business ceases to exist with death of owner

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Partnership

• A relationship between two or more persons
• Not classified as a corporation
• Agreement addresses potential concerns
• Hire an attorney to write up the agreement

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Partnership (Continued)

• General
• Responsible for partnership liabilities, no
  matter which partner incurred them
• Limited
• Only liable to the extent of partnership
  investment
• Partnership Agreements should cover
• Income and loss allocations
• The events that trigger a buyout and a buyout
  price

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Corporation

• Considered separate from owners and managers
• Independently liable
• Owners personal assets are protected
• No limit on number of shareholders in C
  corporation

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Corporation (Continued)

• Small Corporation
• Creditors may require guarantees
• C Corporation
• The company is taxed
• Personal Service Corporation (PSC)
• Engaged in performance of personal services
• S Corporation
• S status with the IRS under state law

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Limited Liability Company (LLC)

• Taxed as a partnership, but provides members with
  liability protection like a corporation
• Only the LLCs assets are at risk
• Pass-through entity
• Income passes through business to LLC members

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Limited Liability Company (LLC) (Continued)

• Operating agreement
• Determines how income is allocated among members
• Gives more flexibility than S Corporation
• File Form 1065
• An informational return with the IRS
• Reports on members income tax returns

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Tax Considerations

• Sole Proprietorship
• Reports on Form Schedule C on federal Form 1040
• Partnership
• Pass-through entity Form 1065 and Schedule K-1
• S Corporation
• Taxed like a partnership Form 1120S and Schedule
  K-1
• C Corporation
• Two levels of taxation Form 1120 and tax on
  dividends, if any, on Form 1040

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Compensation and Payroll Taxes

• Key issue facing small businesses
• Wage income vs. self-employment income
• Sole proprietors may prefer to pay themselves in
  the form of wages
• Health care considerations
• Retirement plan considerations

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Thank you!