In This Edition:
- Starting a business? Learn more about the different legal structures
- Get to Know Our Team
- Recipe Spotlight
- Complimentary Estate Planning Webinar
Starting a business? Learn about the different legal structures for your business and how to best secure it
By Bryce Kaufman, Attorney
Are you looking to protect your assets or start a new business? Your business structure can affect how much you pay in taxes, your personal liability, paperwork and meeting requirements, and your ability to raise money. Making the right choices in the early stages of business formation can help you avoid challenges later.
You must choose a business structure before registering your business with the state. Most business structures require you to get a tax identification number and file for the appropriate licenses and permits. Each type of structure has its own benefits and considerations that are affected by the business’ size, number of owners and employees, and other variables.
An overview of some of the different types of business structures:
Suppose you are currently operating a business and have not registered as any other type of business. In that case, you likely are considered a sole proprietorship. A sole proprietorship is the simplest and most straightforward business type. However, a sole proprietorship does not create a separate entity. Under a sole proprietorship, your business assets and liabilities are not separate from your personal assets and liabilities.
A partnership is the simplest structure for two or more individuals to own a business. There are two primary forms of a partnership, limited partnerships (LP) and limited liability partnerships (LLP). A partnership can be a good choice for professionals and before forming a more formal business.
- A limited partnership (LP) will limit some partners’ personal liability but leave one general partner with unlimited liability. The general partner must also pay self-employment taxes, where all other partner’s profits pass through to personal tax returns.
- A limited liability partnership (LLP) is where every partner has a limited personal liability for the debts of the partnership and generally will not be liable for the damages of the other partners.
There are several types of corporations, including C Corporation, S Corporation, B Corporation, Close Corporation, and Nonprofit Corporation. C and S Corporations are discussed below, but feel free to talk with at Myatt and Bell if a B Corporation, Close Corporation, or Nonprofit Corporation is appropriate for you and your business.
- C Corporation: A C Corporation, or as most people know as a corporation, is its own legal entity, separate from its owners. Owners of a corporation are called shareholders who own stock in the corporation in exchange for money or other assets. Distributions or payments to the shareholders are called dividends. As a corporation is its own legal entity, it has its own assets and debts, separate from the shareholders. However, a corporation has disadvantages such as high expense to start, complex regulations and formalities, and double taxation. Double taxation occurs because the profit of a corporation is taxed to the corporation when earned, and the shareholder is then taxed when dividends are distributed.
- S Corporation: An S Corporation eliminates the double taxation issue of a C Corporation. An S Corporation has flow-through taxation allowing profits and losses to pass through to the shareholders. Otherwise, an S corporation operates like an ordinary C corporation with the same advantages and disadvantages. S corporations also have limitations, such as the number of shareholders and who or what entities can be shareholders.
Limited Liability Company (LLC)
The Limited Liability Company (LLC) is the goldilocks for many business owners between sole proprietorship/partnership and corporations. An LLC allows an individual to shield personal assets from business liability while maintaining flexibility. Another advantage of an LLC is pass-through taxation, allowing profits and losses to pass through to your personal income without facing corporate taxes. An LLC can also be structured so each member owns and controls equal parts of the business or set up such that the LLC is managed by some members with different control and/or profit to other members.
|Sole proprietorship||Simplest and easiest type of business to form||Unlimited personal liability|
|Partnerships||Simple and easy to form||Unlimited personal liability unless structured as a limited partnership|
|C Corporation||Owners are not personally liable||Double taxation, more expensive to set up and more formalities than LLC|
|S Corporation||Owners are not personally liable and flow-through taxation||More expensive to set up and more formalities than LLC, more restrictions than a C Corporation|
|Limited liability company (LLC)||Owners are not personally liable and pass-through taxation||Requires registration and paperwork to form and formalized behavior|
Choosing the best business structure for you can be challenging enough. Properly setting it up after you have chosen is another challenge altogether. Attorneys at Myatt & Bell can help you navigate what is best for you and execute a plan.
Secure Your Business with an Estate Plan
Business formation issues are important; and, equally important is business succession planning.
We will be talking more about business succession planning in our next issue, so please be on the lookout. But in general, having a comprehensive business succession plan in place from the beginning sets proper expectations. It removes elements of uncertainty and the potential for surprise among your owners, partners, and managers. Creating a plan early in the life of your business also means that should any unforeseen event occur, your business will be less impacted by loss or incapacity.
Myatt & Bell is here to help. Our attorneys advise clients on questions of business formation and are ready to start your business succession planning today.
Judy Gibson, Sr. Paralegal
What are you currently reading?
Killing the Legends, which is about the lives, legacies and tragic deaths of Elvis, Lennon and Ali.
What is your all-time favorite book or movie?
Doctor Zhivago because it was the first movie my husband, Jer, and I watched when we were dating.
Most memorable place you have vacationed?
I visited Maui once with my husband and some friends. We all flew into Kaanapali with our bicycles in tow! We bicycled around the island, with the men in our group alternating between riding and hauling a bicycle trailer behind them with our clothes, snacks, and water. We started in Kaanapali and biked 20 to 30 miles a day (our longest day was 70 miles!), and stopped at various Bed & Breakfasts along the way. We eventually made it around the entire island and it was an incredible experience.
My Dad’s Infamous Pancake Recipe
Ingredients & Instructions
- 1 heaping cup of flour, plus 1 tablespoon
- 1 tsp of sugar, ½ tsp salt
- 1 tsp baking soda
- 1 egg yolk
- 3 tablespoons of shortening melted (mom always used bacon grease and it is the best)
- 2 cups buttermilk
- Mix flour, sugar, salt, backing soda and egg yolk with buttermilk until thoroughly mixed and add melted shortening.
- Beat egg white until stiff and fold into batter.
Estate Planning & Peace of Mind
Have you found yourself making excuses for why not to get your estate in order? Maybe you’re convinced that you really don’t need estate planning. If you have assets and loved ones, you need an estate plan. Having an estate plan that is right for you ensures your loved ones are taken care of and that the transition is as easy as possible.
Attend one of our complimentary estate planning webinars and see for yourself. Having your estate plan prepared and understanding the why’s behind the importance of estate planning can bring you the peace of mind you have been needing. Join us at our next Estate Planning Informational Webinar by clicking here.
From Our Clients
“We always get great service, all of our questions answered. The staff are polite courteous attentive and pleasant. Most importantly, their fees are very reasonable and we never go away feeling like we got gouged. We always recommend this firm to friends when they are seeking good counsel and estate planning needs.” – Linda D.
“We have never been anything other than delighted with the professionalism, customer service, expertise and engaging culture of this estate planning legal practice. Check out their website for a calendar of regularly presented online introductions to estate planning basics. I’ve participated in these webinar a couple of times since I understood more every time I listened in.” – Sandy N.
Families choose Myatt & Bell to design their estate plans with honest optimism and meticulous attention to detail.
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