10 steps presentation version pdf
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10 stepsTRANSCRIPT
Legal-Ease and Peace of Mind
(10 Steps to Formation Nirvana)
By: Xonna Clark, Esq.
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AGENDA
¤ First of a series
¤ Roadmap of first 10 steps
¤ Ease and Peace of Mind ¤ Options: DIY or Seek Support
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NAME AVAILABILITY � DOMAIN NAME � FEDERAL LEVEL- TRADEMARK OFFICE � STATE LEVEL � LOCAL LEVEL
Step 1: The Big Step- Your Business Entity
ENSURE YOUR NAME IS AVAILABLE-- BEFORE YOU DO ANYTHING ELSE
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Which Entity Is Best For Me? 3 Way Decision
Ease of operation Tax Issues Liability
Protect personal assets, lower tax bill, and grow your business!
• Complexity • People Involved • Capital • Control • Cost • Skills • Survivorship
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What Are My Choices? � Sole Proprietorships � Partnerships
� General � Limited
� Limited Liability � Corporations � Limited Liability Company � Limited Liability Partnership
The Decision Is Different For Everyone
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Best Entities for Most Small Businesses
¤ Sole Proprietorship ¤ LLC ¤ Subchapter S Corporation
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PROS � Least complex/most flexible � Lowest cost � Complete control � No extra tax returns CONS � Unlimited liability (home and family assets at risk) � Extra taxes- 15.3% self employment tax � No deduction against self employment tax for
fringe benefits (e.g health insurance/ pension) � Only one person or a married couple � Financing is from you & borrowing � Business dies with you or sale of all assets
Sole Proprietorship 7
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Limited Liability Company- LLC
PROS ¤ Limited liability can be selected ¤ Unlimited number of people involved ¤ Capital from members & borrowing ¤ Control/Centralized management ¤ Can add skilled personnel ¤ Members divide profits or losses ¤ Must have a dissolution date ¤ Free transferability of interest
A hybrid creation; varies by state
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CONS
¤ More costly than sole proprietorship ¤ Must choose tax election ¤ State filing to set up Articles of Organization ¤ Should have an operating agreement ¤ Must treat as a separate entity or can lose liability
protection ¤ Self-employment tax on entire earnings
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Sub Chapter S Corporation
PROS ¤ Legal life of its own ¤ Limited liability for shareholders ¤ Capital - sale of stock & borrowing ¤ Control with elected officers & board ¤ Can add skilled personnel ¤ Perpetual life ¤ Can deduct for fringe benefits ¤ Can deduct losses against personal income tax ¤ No double taxation of a C Corporation ¤ Advantage over LLC- no self-employment taxes on
profits that are not paid out as salaries.
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CONS ¤ Highly regulated ¤ Requires formal corporate records ¤ Annual corporate filings ¤ More expensive ¤ Veil can be pierced ¤ Fewer fringe benefit deductions ¤ Must elect to be a Sub S with IRS using Form
2553 – Must be filed before the end of the tax year of incorporation
More Regulated; Risk Of Loss Of
Protection
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What About a Partnership?
Two types: General and Limited
General Partnership
2 or more individuals join together to carry out the business.
PROS:
¤ Unlimited number of people involved ¤ Can raise additional monies ¤ Can add skilled partners ¤ Partners share control ¤ Partners divide profits or losses ¤ Taxed on individual tax return
Add picture partners
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CONS ¤ Partner 100% liable for the other’s debts/acts ¤ More costly than sole proprietorship ¤ Like sole proprietorship, must pay additional self
employment tax ¤ Limitations on fringe benefit deductions ¤ “Dissolves" upon death of partner ¤ Requires more bookkeeping ¤ Partners pay taxes on entire share of profits, even
reinvested funds in the business ¤ Definitely need a Partnership Agreement
Beware- Partnerships can be complex!
Picture- 2 arguing
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Limited Partnership 2 or more individuals join together to carry out the
business but some partners are more protected
PROS � Unlimited number of people involved � Can raise additional monies � Can add skilled partners � Limited partner’s liability limited to amount of their
investment � Partners divide profits or losses � Only general partner has control � Taxed on individual tax return
Good For Financing
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CONS
¤ General partner 100% liable for debts and acts of all ¤ Limited partners can lose protection ¤ More costly than sole proprietorship ¤ Need a Partnership Agreement ¤ Must do Certificate Registration with the State ¤ Like sole proprietorship, must pay additional self
employment tax ¤ Limitations on fringe benefit deductions ¤ Requires more bookkeeping ¤ “Dissolves" upon death of general partner
BUT—Higher Risk for General Partner
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Limited Liability Partnership-LLP PROS ¤ Confers limited liability to all partners; one partner is not
responsible for another’s wrongdoing. ¤ Allows all partners to be involved in the management ¤ All other benefits of a partnership apply
CONS ¤ Additional registration ¤ Varies by state
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Critical Document— The Partnership Agreement
¤ What is the name and nature of the business? ¤ Are there any limitations on partnership authority? ¤ How much capital is each going to contribute? ¤ What % of capital is money vs time-skill? ¤ What are the duties and responsibilities of each
partner (are there limits)? ¤ How are disputes handled?
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And More…
¤ What happens if one partner decides to quit or is terminated?
¤ Are there any limitations on draw? ¤ How is profit or loss to be split? ¤ Who will do accounting and what will be shared with individual partners? ¤ Is there an election to continue the business? ¤ Use of name
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And More!
¤ How are partners’ interests to be valued on death or dissolution?
¤ What is the duration of the partnership? ¤ Will there be an arbitration process? ¤ See a good attorney – each partner should have a
different attorney ¤ Buy/Sell agreement funded by life insurance
So, Is A Partnership For You??
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Finally, a C-Corporation Pros
¤ Legal life of its own ¤ Limited liability for shareholders ¤ Unlimited number of people involved ¤ Capital - sale of stock & borrowing ¤ Control with elected officers & board ¤ Can add skilled personnel ¤ Perpetual life ¤ Can deduct for fringe benefits
The Most Liability Protection
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CONS • Highly regulated • Requires formal corporate records • Annual corporate filings • Most expensive • Double tax • Veil can be pierced
The Most Regulated
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Rule of More The more you have of any of the following…
¤ Business owners ¤ Business complexity ¤ Sites of operation ¤ Capital investment ¤ Other businesses ¤ Need for multiple layers
of protection
¤ Cash for investment
¤ Personal wealth ¤ Business related
risk ¤ Employees ¤ Tax complexities
The More Protective Structure You Need and the Less You Should DIY
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Online Resources for determining a business structure
SBA: http://www.sba.gov/content/business-structure-and-tax-implications
SCORE: http://www.score.org/events/workshops/determining-your-business-legal-structure
IRS: http://www.irs.gov/Businesses/
STATE: MD SDAT: http://www.dat.state.md.us/MD Small Business Development Center: www.mdsbdc.umd.edu DC Dept. of Corporations: http://dcra.dc.gov
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NOW THAT YOU ARE FORMED, WHAT DO YOU DO?
STEP 2: Register your “trade” name ¤ SBA:
http://www.sba.gov/content/5-steps-registering-your-business
¤ DC: http://dcra.dc.gov/publication/trade-name-registration-form
¤ MD: http://www.dat.state.md.us/sdatweb/sdatforms.html
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STEP 3: Obtain Federal Tax Identification (“EIN”) Number ¤ Assigned to sole proprietors, corporations,
partnerships etc. for tax filing and reporting purposes ¤ Source:
¤ IRS.gov for filing- Form 2553 ¤ SDAT ¤ DC Dept of Taxation
Often Needed to Establish Business Bank Account
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STEP 4: Check County and Local Zoning Requirements ¤ Check that your business activity is permitted ¤ Check for restrictions on home-based businesses
¤ DC requires a Home Occupation Permit ¤ Check MD county zoning regulations
¤ Check for regulations on signs and parking ¤ Source: County/DC planning and zoning
department
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STEP 5: Check For State and Local License and Permits ¤ State of MD: business license required for most
businesses ¤ Source:
¤ -Clerk of the Circuit Court in county where business is located
¤ -Dept of Business and Economic development, Dept of Labor, Licensing and Regulation
¤ -Division of Occupational and Professional Licensing
¤ DC: Basic Business License Program
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STEP 6: Check for Sales Tax
¤ retail sale of property and taxable services ¤ sometimes on food sales
¤ Source: MD COMAR 03.06.01.05
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STEP 7: Set Up Tax and Bookkeeping Mechanisms
¤ Ensure you understand possible deductions and keep your receipts separated accordingly.
¤ Ensure you are properly using and accounting for your home-based business
¤ Most accountants recommend Quickbooks from the beginning
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STEP 8: Get Insurance-Assess the Risk
¤ Professional liability-
individual ¤ Professional liability-
Business & Personal Errors and Omissions
¤ Business Interruption ¤ Personal disability ¤ Employer Practices
Liability
¤ Health ¤ Fire ¤ Burglary ¤ Flood ¤ Property ¤ Theft ¤ Automobile liability ¤ Business Loan ¤ Buy-Sell Agreements ¤ Rider for House and
personally owned vehicle
Types of Insurance
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Advice ¤ Shop around for rates and coverage ¤ Independent vs House ¤ Coverage under personal policy and commercial policy
may be different ¤ Contact: reputable agent ¤ Do you have enough insurance to get your business back
in operation? ¤ Review your policy to make sure you understand what is
not covered.
Many MUIH Nutritionist Use HPSCO
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STEP 9 – Get Your Agreements in Place
¤ Internal Organizational Documents ¤ Informed Consent and HIPAA Notice ¤ Various Operational Documents
Will Offer A Separate Session On Agreements
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STEP 10- Hire Your Team
¤ Accountant ¤ Insurance Agent ¤ Lawyer
Even DIYers Need a Business Team
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Action Plan Checklist 1. Form the right legal entity structure for you 2. Get your trade name registered 3. Get your Tax ID # 4. Check Zoning Restrictions 5. Get Your Permits/Licenses 6. Determine Sales Tax Requirements 7. Establish Your Tax/ Accounting Processes 8. Get Insurance in Place 9. Establish Proper Agreements 10. Hire Your Accountant, Insurer, Lawyer
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Places To Go For Help
SBA: http://www.sba.gov/training MD Small Business Development Center: http://www.mdsbdc.umd.edu MD Women’s Business Center: http://www.mdwbc.org DC Small Business Dev’t Ctr https://www.dcsbdc.org SCORE: http://www.score.org
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Legal Care For Wellness Care
¤ 25% Savings for MUIH Students/Graduates ¤ Flat Rates/Packages Available ¤ Future Webinars:
¤ Legal Agreements ¤ Trademarks/Copyrights ¤ Making Product/Service Claims
¤ Referrals Welcomed for Workshops or Personal Retainer
Contact Xonna Clark, Esq. 704-516-6973 [email protected]
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