CHOOSING THE RIGHT ENTITY FOR YOUR BUSINESS John Provo Certified - - PowerPoint PPT Presentation

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CHOOSING THE RIGHT ENTITY FOR YOUR BUSINESS

John Provo Certified Mentor Maplewood Public Library September 12, 2018

SCORE WHY IT MA TTERS The entity you choose will affect: ❑ Control over key decisions ❑ Access to outside capital ❑ Personal Liability ❑ T axes ❑ Start Up Costs

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FORMS A BUSINESS CAN TAKE

❑ Sole Proprietorship ❑ Corporations (S Corp/ C Corp) ❑ Limited Liability Company (LLC) ❑ Partnerships (General, Limited, LLP , LLLP)

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FACTORSTO CONSIDER

 Start-Up Costs  Personal Liability  T ax Consequences  Need for Capital  Key Decisions  Ease of Management

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SOLE PROPRIETORSHIP

❑ Easiest to set up and operate ❑ Profits are taxed only once ❑ Unlimited personal liability ❑ Business ends on owner’s death ❑ Easy to liquidate

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SOLE PROPRIETORSHIP FORMATION

❑ No formal process ❑ Obtain licenses and permits ❑ Register Assumed Name (if necessary) ❑ Obtain Employer Identification Number

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P

ARTNERSHIPS

❑ T wo or more people contribute money, labor and/or skill to a business, and share profits, losses, and management. ❑ T wo Types: General and Limited

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GENERAL P

ARTNERSHIP

❑ Easy to set up and operate ❑ Profits are taxed only once ❑ Unlimited personal liability ❑ Business ends on partner’s death or withdrawal (unless otherwise agreed) ❑ Easy to liquidate

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GENERAL P

ARTNERSHIP FORMATION

❑ Register Assumed Name (if necessary) ❑ No formal process ❑ Partnership Agreement (optional, but highly recommended). ❑ Obtain licenses and permits ❑ Obtain Employer Identification Number

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LIMITED P

ARTNERSHIP

❑ Easy to set up and operate ❑ Profits are taxed only once ❑ Limited personal liability for limited partners ❑ Business ends on partner’s death or withdrawal (unless otherwise agreed) ❑ Easy to liquidate

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LIMITED P

ARTNERSHIP FORMATION

❑ Name must include “Limited Partnership ❑ Obtain licenses and permits ❑ la.w ❑ File Certificate of Limited Partnership . ❑ Partnership Agreement (required)law. ❑ Obtain Employer Identification Number ❑ Obtain Employer Identification Number ❑ Maintain records as required by state law.

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CORPORATIONS

❑ Formed under state or federal law. ❑ Legally treated as an artificial person, distinct from its shareholder owner. . ❑ 2 Types: C Corp. and S Corp

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CORPORATIONS

❑ Profits may be subject to double taxation ❑ Complex to set up and operate ❑ Limited legal liability ❑ Business continues after death of owner(s) ❑ More difficult to liquidate

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CORPORATION FORMATION

❑ File Articles of Incorporation ❑ law. ❑ Name must include “Corporation” or similar designation ❑ Shareholders own corporation and elect Board of Directors ❑ Board sets policy and elects officers to run the business

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LIMITED LIABILITY COMPANY

❑ Cross between a partnership and a corporation

❑ Tax advantages of a partnership ❑ Limited liability of a corporation

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LLC FORMATION

❑ File Articles of Incorporation ❑ Name must include “LLC” (or similar designation)law. ❑ Members own entity and elect officers to run the business ❑ Obtain Employer Identification Number

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START UP COSTS

P-Ship LLC C Corp S Corp Sole Prop.

LEAST EXPENSIVE MORE EXPENSIVE

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KEY DECISIONS

P-Ship LLC S Corp C Corp Sole Prop.

LEAST CONTROL MOST CONTROL

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EASE OF MANAGEMENT

LLC S Corp . P- Ship C Corp Sole Prop.

EASIEST MORE DIFFICULT

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PERSONAL LIABILITY

S Corp. LLC P- Ship C Corp Sole Prop.

LEAST RISK MORE RISK

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NEED FOR OUTSIDE CAPITAL

LLC S CORP P-Ship C Corp Sole Prop.

LEAST ACCESS MORE ACCESS

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20% SMALL BUSINESS DEDUCTION

TYPE OF TAXPAYER INCOMETHRESHHOLD

Single Persons $157,500 Married Persons $315,000 Estates $157,500 Non-grantor Trusts $157,500 Children subject to “kiddie tax” $157,500

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20% SMALL BUSINESST

AX DEDUCTION

Taxable Income Type of Business Savings Service Non-Service

Less Than $315,000 20% Deduction 20% Deduction Up to $63,000 $315,000 - $415,000 Deduction phased

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Limitation phased-in Up to $20,000 Greater than $415,000 No Deduction W-2/ Property limit Applies

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ENTITIES ELIGIBLE FOR 20% SMALL BUSINESS DEDUCTION

❑ Sole Proprietors ❑ Rental real estate owners ❑ S Corporations ❑ Partnerships

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PERSONAL SERVICES

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PERSONAL SERVICES

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APARTMENT BUILDING

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APARTMENT BUILDING

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CONSUMER PRODUCTS

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CONSUMER PRODUCTS

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