What's the Best Entity? Solve the Mystery of Legal Organization

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What’s the Best Entity?Solve the Mystery of Legal Organization

Copyright 2010, Sigma College of Small Business, Inc.2

Introductions

Keynote TopicWhat’s the Best Entity

Solve the Mystery of Legal Organization

Keynote ConclusionWhat’s the Best Entity

Solve the Mystery of Legal Organization

Break – Refreshments and Networking

Ask Questions Any Time

Agenda

What's the Best Entity? Solve the Mystery of Legal Organization

Copyright 2010, Sigma College of Small Business, Inc.3What's the Best Entity? Solve the Mystery of Legal Organization

Exit Strategy

Entity Structure

Value Mod

el

Marketing

Tactics

Implem

entation

Business Strategy

–Perspe

ctive

–Organization

–Incentive

–App

roach

–Actions

Five Pillarsof a Business Strategy

Copyright 2010, Sigma College of Small Business, Inc.

Legal Organization

• Considerations– Liability – accident and financial

– Taxes – Income, payroll, estate

– Investment , ownership transfer and management

• Types of Organization– Sole Proprietor and Partnership

– “C” Corporation and “S” Corporation

– Limited Liability Company

4What's the Best Entity? Solve the Mystery of Legal Organization

Legal organization is an important decision made to support your personal and business goals

Sole Proprietor Partnership Limited

Partnerships Limited Liability Company S‐Corporation C‐Corporation Sole Proprietor Partnership Limited

Partnerships Limited Liability Company S‐Corporation C‐Corporation Sole Proprietor Partnership Limited

Partnerships Limited Liability Company


Terminology

• Personal Tax Rate – incremental tax rate on personal return

• Business Tax Rate – incremental tax rate on business return

• Payroll Taxes – Social security and Medicare taxes

• Pass Through – Business profit taxed on personal taxes


• Business Liability – company assets that are at risk

• Personal Liability – personal assets that are at risk

• Limited Liability –personal liability is limited for some reason

• Active Investment – investor actively involved in management

• Passive Investment – investor not involved in management

Liability

Taxes

Owne

rship


Liability

The English FlyerMaster John Fowles

• General Partnership

• £250 for 10% “ownership”

• Unlimited joint and several liability

• Each investor personally liable for all debts and obligations

The English RoseSir Richard Starkley

• Corporation

• £250 for 10% “ownership”

• Limited to £250 liability

• Each investor’s liability limited only to the £250 put into corporation


“Own Your Own Corporation”, Garrett Sutton, Esq.,


TAXESLegal Organization


7


Entity FlexibilityMillennium Salsa

Thelma

• Investing– 2 Years low wages

– Management skill

• Wants– 1/3 of business

– Job

Pepe

• Investing– $200,000

• Wants– 1/3 of business– Use of losses– First $300k

of profit


Hans

• Investing– Salsa Recipe

– Offer to help

• Wants– 1/3 of business

– Job

• Corporation requires stock ownership, equitable pass through of profit and loss• LLC Flexibility allows financial and management desires to be met

From “Own Your Own Corporation”, Garrett Sutton, Esq.,


Investment, Transfer and ManagementJim Aaron ‐ 17

• Interests– Girls

Chris ‐ 15

• Interests– Rock &

Roll


Bob ‐ 16

• Interests– Sports

• Legal Entities can help with transfers of assets• Management Control• Financial

From “Own Your Own Corporation”‐ Garrett Sutton, Esq.,


“I’m Going to Start a Business”Legal Organization Example

Generate Income for Myself

• S‐Corp or LLC– Liability Protection– Cash can pass through

without double taxing– Losses pass through

• May be a draw for some investors

– LLC provides more flexible management and ownership options

– No “corporate” or foreign investors for S‐Corp

Build Business for Growth

• C‐Corp– Liability Protection– Cash kept in company for

growth taxed at corporate rate – 15% for <$50k

• Personal Service Corp – 35%

– Dividends taxed to shareholders

– Benefits to salaried shareholders not part of salary

– Corporate Investors


13


Legal OrganizationGeneral Strategies• LLCs and S‐Corps

– Minimum salary with higher distributions• Reduce the payroll taxes

– Strategy for:• Max cash out of business• Pass through losses

• C‐Corp– Higher salary, low distribuitons, high benefits

• Only double taxed on distributions– Strategy for:

• Retaining cash for growth• High value exit strategies (IPO or sale to public company)• For Personal Service Corporation – Zero Profit!

• Limited Partnership– Allow gifting and investment while maintaining control– Manage liability through a corporate general partner

What's the Best Entity? Solve the Mystery of Legal Organization 14

Copyright 2010, Sigma College of Small Business, Inc.What's the Best Entity? Solve the Mystery of Legal Organization

Critical Business Areas

Strategy and Planning

Marketing and Sales

Accounting and Finance

Operations and Quality

Leadership and Administration

Technology and Innovation

Sigma College of Small Business

• Focus Workshops– Leveraging the Online Social Network

• Tuesday, July 13th, 2010

• 10am –2pm, $199

• Upcoming SigmaFree Classes– 6/15 – What’s Your Business? The Art of an

“Elevator” Pitch

– 6/22 – Setting the Course! Build Your Business Strategy

– 6/29 – Big Spending Decisions! Use More that a Gut Feel

15Dedicated to the Learning Needs of Small Business!

What's the Best Entity? Solve the Mystery of Legal Organization

Business

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