choosing the right entity for your business c… · choosing the right entity for your business...
TRANSCRIPT
| St. Paul Overview
CHOOSING THE RIGHT
ENTITY FOR YOUR BUSINESS
John Provo
Certified Mentor
Maplewood Public Library
September 12, 2018
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WHY IT MATTERS
The entity you choose will affect:
❑ Control over key decisions
❑ Access to outside capital
❑ Personal Liability
❑ Taxes
❑ 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
Tax 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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PARTNERSHIPS
❑ Two or more people contribute money, labor
and/or skill to a business, and share profits,
losses, and management.
❑ Two Types: General and Limited
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GENERAL PARTNERSHIP
❑ 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 PARTNERSHIP 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 PARTNERSHIP
❑ 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 PARTNERSHIP 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
LLCC
Corp
S CorpSole
Prop.
LEAST
EXPENSIVEMORE
EXPENSIVE
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KEY DECISIONS
P-Ship
LLCS
Corp
C CorpSole
Prop.
LEAST
CONTROL
MOST
CONTROL
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EASE OF MANAGEMENT
LLCS
Corp
.
P-
Ship
C CorpSole
Prop.
EASIESTMORE
DIFFICULT
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PERSONAL LIABILITY
S Corp.
LLCP-
Ship
C CorpSole
Prop.
LEAST
RISK
MORE
RISK
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NEED FOR OUTSIDE CAPITAL
LLCS
CORP P-Ship
C CorpSole
Prop.
LEAST
ACCESS
MORE
ACCESS
| St. Paul Overview
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
| St. Paul Overview
20% SMALL BUSINESSTAX DEDUCTION
Taxable IncomeType of Business
SavingsService Non-Service
Less Than
$315,000 20% Deduction 20% Deduction
Up to
$63,000
$315,000 -
$415,000
Deduction phased
out
Limitation
phased-in
Up to
$20,000
Greater than
$415,000
No Deduction W-2/ Property
limit Applies
- 0 -
| St. Paul Overview
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
