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Business Organization Alternatives

Business Organization Alternatives. Organization Alternatives. 1. Sole Proprietorship 2. General Partnership 3. Limited Partnership 4. Corporation. A. Sub S B. Regular 5. Limited Liability Company. Examine. Advantages and Disadvantages Tax Issues Transfer of Business Interest.

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Business Organization Alternatives

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  1. BusinessOrganization Alternatives

  2. Organization Alternatives • 1.Sole Proprietorship • 2. General Partnership • 3. Limited Partnership • 4. Corporation. • A. Sub S • B. Regular • 5. Limited Liability Company

  3. Examine • Advantages and Disadvantages • Tax Issues • Transfer of Business Interest

  4. Sole Proprietorship • Advantages: • Simple • Complete Control • Fewer record/reporting requirements

  5. Sole Proprietorship • Disadvantages: • Limited Capital • All Management & Liability • Owners Die: Business Terminates • Estate Planning Limitations

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

  7. General Partnership • Disadvantages: • Liability for Actions of Partner • Conflicts between Partners • Management Control

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

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

  10. Limited Partnership • 1 or More General Partners • 1 or More Limited Partners • Limited Liability • No Management • Estate Planning Issues for heirs of limited partner(s)

  11. C Corporations • Advantages: • Limited Liability • Easily Transferable • Death does not terminate

  12. C Corporations • Disadvantages: • Establishment Cost • Franchise Tax • Formality –Board of Directors • Possible Income Tax Problems -Double Taxation • Borrowing Ability of Business

  13. S Corporations • Advantages: • Limited Liability • Easily Transferable • Death does not terminate • Tax benefits pass to shareholders

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

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

  16. Limited Liability Company • Classified as a Partnership or Corporation • Limits Liability • Articles of Organization with Secretary of State • Taxation Issues • Fringe Benefits

  17. Other Tax Issues • Payroll - $150/yr for 1 employee or total to all is >$2,500: must report payroll taxes • SE Tax 15.3% + 2.9% = 17.2% total up to $106,800 • Hobby Loss Issue

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

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

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