Attorney Flecha has been providing counseling and legal advice to business owners, entrepreneurs, and small businesses for over 20 years. Whether it’s deciding the business structure of your dream business, making sure you understand your legal obligations when entering into agreements, or protecting your interests, Attorney Flecha will assist you in ensuring your business needs are met. The following are some of the services, Flecha Law provides its business clients:
- Business Organization
- Company Records and operational documents
- Drafting/Reviewing Contracts and Agreements such and leases, purchase agreements, non-compete agreements, confidentiality agreements, service agreements, etc.
- Liquor Permits Applications
BUSINESS STRUCTURES
SOLE PROPRIETORSHIP
A sole proprietorship does not require the filing or registration of formal paperwork with the government as the business is not considered a separate legal entity from the owner. Simply, it’s the business owned by one individual who is solely responsible for its day to day operations. In a sole proprietorship, the owner claims the income and expenses in Schedule C of his or her individual federal tax return and must include Schedule SE for self-employment tax.
The advantage of running a business as a sole proprietorship is that the start-up costs are minimal compared to the other structures. Furthermore, as stated above, the owner may be eligible for multiple tax deductions. The biggest disadvantage of this business structure is that the owner will be personally liable for all of the business’s debts.
PARTNERSHIP
A partnership is similar to a sole proprietorship but it has two or more owners “partners.” It is not a separate legal entity from the partners, thus, the business and partners are treated as one. For tax purposes, the profits and losses of the business are passed on to the partners. The advantage of setting up this structure is that there are less legal requirements for running a partnership than a limited liability company or corporation. The disadvantage is that the partners are personally liable for business’s debts and obligations. See https://www.irs.gov/businesses/partnerships.
CORPORATION
A corporation is the most complex and expensive business structure to set up. It is a separate legal entity from its owners that requires not only documents to be filed to register the business, but that it comply with specific state laws on how it must conduct its operations. For tax purposes, a corporation (defaults to a C-Corporation) usually files tax returns separate from its individual owners known as “shareholders” or “stockholders.”
The shareholders must also file its own tax return and claim any dividends earned from the corporation. Thus, this business structure is known commonly to cause a “double taxation” effect. A corporation, if it meets certain qualifications, can elect to be considered an S-Corporation. An S-corporation elects to pass corporate income, losses, deductions, and credits through its shareholders. See
https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations. The major advantage to structuring a business as a corporation is its ability to raise capital by selling shares or stocks and limiting a shareholder’s personal liability.
LIMITED LIABILITY COMPANY
A limited liability company is business structure that was created by the state(s) to offers individual(s) the best characteristics of partnerships and corporations. It must registered with the state. It is considered a separate legal entity from its owners known as “members”. However, the members are not personally liable for the debts or obligations of the business. The business and tax requirements are not as rigorous as those needed for corporations. The business can also raise capital by selling “units” which represent ownership interest.
Lastly, the IRS does not have a specific tax code for the treatment of limited liability companies. As a result, the limited liability company can elect to be treated as a C-corporation or an S-Corporation for tax purposes. The disadvantage is that it is more expensive to set up than operating as a sole proprietorship and if not careful, tax liability may be inferred to the owner(s) if the election for tax treatment is not made. See https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc.