Selecting a Structure for your Business Presented by (Name, CPA) Member, The Ohio Society of CPAs 8/10/2015 1

Getting Started How should you operate and structure your business? It can be difficult, so ask for help Consult with a CPA to learn: –Filing and compliance issues –Tax benefits and detriments 8/10/20152

Factors to Consider Tax and non-tax issues, including: –Ownership and continuity changes –Legal liability protection –Federal and state income taxes –Social Security taxes –And more 8/10/20153

Selecting the Structure Sole Proprietorship Partnership: –General –Limited Corporation: –S Corps –C Corps Limited Liability Company (LLC) 8/10/20154

SOLE PROPRIETORSHIP 8/10/20155

Sole Proprietorship One-person business Not registered with state as a limited liability company or corporation Some states require license or permit Owner is personally liable Simplest for tax purposes Business ceases to exist with death of owner 8/10/20156

PARTNERSHIPS 8/10/20157

Partnership A relationship between two or more persons Not classified as a corporation Draft agreement to address potential concerns Hire an attorney to write up partnership agreement 8/10/20158

Partnerships: General or Limited General –Responsible for partnership liabilities, no matter which partner incurred them Limited –Only liable to the extent of partnership investment 8/10/20159

Partnership Buy-Sell Agreements cover: Who can buy a departing partner’s share? The events that will trigger a buyout What determines the price for a partner’s interest 8/10/201510

Corporations 8/10/201511

Corporations Considered separate from owners and managers – independently liable and legal Owner’s personal assets are protected No limit on number of shareholders in C Corporation 8/10/201512

Corporations Small Corporation –Creditors may require guarantees C Corporation –The company is taxed Personal Service Corporation (PSC) –Engaged in performance of personal services S Corporation –S status with the IRS under state law 8/10/201513

LIMITED LIABILITY COMPANY 8/10/201514

Limited Liability Company Taxed as a partnership, but provides members with liability protection like a corporation Only the LLC’s assets are at risk Pass-Through Entity –Income passes through business to LLC members 8/10/201515

Limited Liability Company Operating Agreement –Determines how income is allocated among members –Gives more flexibility than S Corporation File Form 1065 –An informational return with the IRS –Reports on member’s income tax return 8/10/201516

TAX CONSIDERATIONS 8/10/201517

Tax Considerations Partnerships, S and Personal Service Corporations: –Must conform taxes to that of their owners –May use tax year rather than calendar year on Form 8717 Avoid a year-end that is the busiest time for your company 8/10/201518

Tax Considerations Sole Proprietorship –Reports on Form Schedule C on Federal Form 1040 Partnership –“Pass-Through” entity; Form 1065 and Schedule K-1 S Corporation –Taxed like a partnership C Corporation –Two levels of taxation 8/10/201519

Compensation and Payroll Taxes Key issue facing small businesses: –Wage income v. Self-employment income –Make the distinction –Sole proprietors may prefer to pay themselves in the form of wages 8/10/201520

Questions? Comments? 8/10/201521

For further information If you would like further information please contact me: –Name –Company –Address – –Phone 8/10/201522