ENTREP3007 Western Governors Business Venture Summary Paper Write a 2 to 3 page analysis of which form your business has taken or will take. Your analysis

ENTREP3007 Western Governors Business Venture Summary Paper Write a 2 to 3 page analysis of which form your business has taken or will take. Your analysis should include pros and cons of each of the various business forms discussed in the course materials. If you need more information, you should make assumptions and identify any assumptions you make. 4/30/2015
Business Formation
Objectives
• Importance of choosing the right
business form
• Factors to consider
• Introduction to different forms of business
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Why is this so Important?
• Legal liability
– Business
– Individual founders
• Taxes
• Financing
• Clear roles and responsibilities
Factors
• Personal assets
• Tax strategies
• What type of investors do you want to
attract?
• Costs
• Equity incentives
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Clear Roles and Responsibilities
Image from: http://en.wikipedia.org/wiki/Canonical_(company)
Forms of Business
• Partnership
– General
– Limited
– Limited Liability Partnership
• Limited Liability Company (LLC)
• Corporation
– S Corporation
– C Corporation
• Sole proprietorship
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Summary
• Seek legal advice to decide early on what
form your business will take
• Consider protection of personal assets,
taxes, financing, and talent acquisition
• Corporations, partnerships, LLCs, sole
proprietorship
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Corporations
Objectives
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•
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What is a corporation?
Types of corporations
Requirements
Corporate veil
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What is a Corporation?
• A corporation is an independent
legal entity, owned by its shareholders, and
is recognized as a legal “person” under the
law
Types of Corporations
• C Corp
• S Corp
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S Corporation
• Election
• Tax consequences
Requirements
• Board of Directors
• Day-to-day management
• Statutory rules
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Annual meetings
Minutes
Taxes
Bookkeeping
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Corporate Veil
Image from: https://startrightllc.files.wordpress.com/2008/07/corporate_veil.png?w=600&h=222
Reasons to Pierce Corporate Veil
• Alter ego
• Illegal activity
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Best Practices
• Obtain and document board authorization for
corporate actions
• Maintain separate bank accounts for corporate funds
and personal funds
• Maintain proper records for corporation separate
from personal records
• All corporate contracts signed in name of corporation
• No under-capitalization
Summary
• Corporations provide tax and personal
liability advantages
• Must comply with strict statutory rules
• Failure to maintain the corporation as a
separate entity from personal dealings can
result in personal liability for owners
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Limited Liability Company (LLC)
Objectives
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•
•
•
What is a limited liability company?
Benefits
Requirements
Corporate veil
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What is a Limited Liability Company?
• A limited liability company (LLC) is a
business form that combines limited
liability aspects of a corporation and passthrough tax treatment of a partnership
Benefits
• Limited liability
• Tax treatment
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Benefits
• LLC vs. S Corporation
• LLC vs. Limited Partnership
Financing
• Benefits to early-round investors
• VCs may require LLC to convert to
corporation
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Requirements
• Certificate of formation
• Operating agreement
Corporate Veil
Image from: https://startrightllc.files.wordpress.com/2008/07/corporate_veil.png?w=600&h=222
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Reasons to Pierce Corporate Veil
• Alter ego
• Illegal activity
Best Practices
• Deal with vendors, suppliers, and other
creditors fairly and legally
• Keep LLC and personal business separate
• Fund the LLC appropriately
• All business contracts signed in name of
LLC
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Summary
• LLCs provide tax and personal liability
advantages
• Certificate of formation and operating
agreement
• Failure to maintain the LLC as a separate
entity from personal dealings can result in
personal liability for members
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Choosing a Business Form
Why is this so Important?
•
•
•
•
Legal liability
Taxes
Financing
Clear roles and responsibilities
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Forms of Business
• Partnership
– General
– Limited
– Limited Liability Partnership
• Limited Liability Company (LLC)
• Corporation
– S Corporation
– C Corporation
• Sole proprietorship
Objectives
• Factors to consider in choosing form of
business
• Registering your business
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Factors to Consider
• Owners
• Distribution of earnings
• Profit/loss projections
Owners
• Typically not a determinative factor
• C Corp is preferable if:
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Widely held ownership
Publicly traded
Employees with ownership interests
VC funding
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Earnings
• Distribute earnings now
– Consider a tax pass-through entity
(LLC or S Corp)
– Taxed as ordinary income
– C Corp may result in double taxation
• Reinvest earnings to be sold for stock later
– Gain on sale of stock taxed at favorable capital
gain tax rates
Profit/Loss Projection
• Initially generate profits, then C Corp is
preferred
• Initially generate losses, then tax passthrough entity (LLC, partnership or S Corp)
is preferred
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Registering your Business
• Clear name with state Secretary of State
office
• Trademark issues
• Before selecting a name, check to see what
Internet domain names may be available
• Consider availability in other states
– Name availability
– Foreign entity registration requirements
– Taxes
Summary
• Pros and cons of different business forms
• Consider ownership, distribution of
earnings, and whether business projects
initial profits or losses
• Choose a business name and register your
business in states where you want to
conduct business
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