Professional Documents
Culture Documents
Isabel de la Riva
Founder and Senior Partner
de la Riva & Associates Legal Team
Issues: Management
Independent or Partnership
Member or Manager Managed
Traditional Roles or No Hierarchy
Powers of each
Scope of responsibility
Accountability: To Whom and when
Limitations: Extraordinary
transactions
Indemnification
Issues: Operations
Bank Accounts: Set up, EIN
Accounting Periods: Fiscal or Calendar
Reports: To State, to members, to IRS
Bookkeeping
Meetings
Changes to Agreement
Disputes
Issues: Formalizing A
Business
No, you cannot do it all.
Banker
Accountant
Lawyer
Manager
Marketing Person
Salesperson
CONTROLLED RISK
Types of Business
Formations
Sole Proprietorship
Partnership
Limited Liability Company or
Professional Limited Liability
Company
Corporation
Sole Proprietorship
Simplest and Least Expensive
Owner receives all profits
Partnership
Business enterprise owned jointly by 2
or more
Profits, debts, and liabilities are shared
Can create a LIMITED PARTNERSHIP or
a GENERAL PARTNERSHIP
GENERAL PARTNERSHIP
All partners participate in
the day-to-day
management of the
LIMITED
PARTNERSHIP
business
Has passive partners who
contribute capital but
have minimal control
Corporations
Legal entity who can own a business,
sue or be sued
Must pay its own taxes
Operates the business according to a
written charter issued by the State
Different forms available
Sole Proprietorship
Enjoys complete control
over business
This type of business
owner receives all the
profits, but also has sole
responsibility of all debts
and liabilities
Income tax returns
combine business and
personal income
Sole Proprietorship
Advantages
Least amount of red tape to
complete in establishing the
business
Little or no expense in forming or
dissolving the business
Simplicity of operation
Certain reporting requirements are
not necessary
Income is taxed only once
Sole Proprietorship
Disadvantages
Unlimited liability for business
debts.
Income tax rate may be higher
than the corporate form of
business organization.
Tax saving or retirement plans
are complicated.
If the business is to operate as
a sole proprietorship or
partnership, the entrepreneur
should consider recording a
Partnership
Partnership form is necessary
when there are several
owners involved in a business
Income tax returns are
information returns that
allocate income or losses to
the partners
The partnership or business
must file its own return, but
it pays no tax
Partners must claim their
General Partnership
Most common partnership
All partners sharing equally
Equal ownership
Equal management decisions
Equal responsibility for partnership debts
Limited Partnership
The limited partnership must include
at least one or more general partners
who participate in management
decisions and who have personal
responsibility for the partnership debts
There will also be one or more limited
partners who do not participate in
management and whose liability for
partnership debts is limited to the
amount they have contributed to the
business
Partnership
Advantages
Allows persons with insufficient
net worth to pool funds to
purchase a business
Provides an opportunity to split
management duties, unless the
partner is a limited partner
Income is taxed only once
Partnership
Disadvantages
Must share the decision making
with other partners
Compatibility and cooperation of
the partners are essential
Each general partner has
unlimited liability for the debts of
the partnership
If all but one of the general partners
are financially unsound and unable
to pay debts, the one financially
secure partner can be required to
Corporations
Most permanent form of
business - continues for the life
of its charter regardless of what
happens to the original
organizer
Owned by stockholders in
proportion to their number of
shares
Can be a one person operation
with only one stockholder
holding all stock and being the
only officer
S vs C Corporation
Federal Income Tax Purposes
The S Corporation
Taxed the same as a
partnership
Income of S Corp passes
directly to stockholders who
pay taxes on their shares
without any federal income
taxCbeing
paid for
The
Corporation
corporation
itselfincome tax on its
Pays corporate
earnings
Stockholders pay income tax on
Corporations
Advantages
A corporation pays 15% of federal
income tax on taxable income up to
$50,000
25% tax on income from $50,001 to $75,000
It With
is easy
to sell part
of theatbusiness.
incremental
increases
100k and 335k
Corporations
Disadvantages
Earnings or income withdrawn
from a corporation must be in the
form of dividends or bonuses
both are taxable to both the
corporation and the shareholder
More difficult to transfer cash in
and out
Requires the most paperwork:
annual meetings, minute book and
record of stock and stockholders
Annual report, annual minutes and
Corporations
The C Corporation
Is the default corporation
All corporations are automatically C
unless they are specifically set up to be S
The S Corporation
Known as the Small Business
Corporation
Governed by Subchapter S of the IRS
Code of 1986
To qualify, a business MUST comply with
strict eligibility requirements with regards
Single-Member LLC
An individual in business
by himself, with no
employees, can make
his/her company an LLC
It is treated as a
disregarded entity for tax
purposes
As a single-member LLC, a
business person can treat
the business like a sole
proprietorship and only
needs to file a Schedule C
C
L
L
C
L
L
Operating as an LLC
To have asset protection
benefits, especially the sole
member LLC, owner must
observe formalities and
operate business as an LLC
Need adequate
capitalization depending on
the nature and extent of
the business
Have annual meetings and
produce statements about
the past business year and
expectations for the future
C
L
L
Operating as an LLC
Owner must enter into contracts
through LLC and not personally
Use checks and stationary to give
notice to third parties they are dealing
with an LLC
C
L
L
Comparison
Limited Liability
Company
Natural asset protection
features
Shields investors and
active participants of the
business in the same way
as corporation
Advantage over
corporation when it
comes to creditors
claims against the owner
of the business
Corporation
Separate legal entity that
pays taxes
Own by shares
Comparison
Limited Liability
Company
Asset protection
advantage
Limited Liability
Partnership
Fully responsible for all
claims against the
partnership
LLP will likely have a
corporation for a general
partner to limited the
liability of the GP, but
then you increase
complexity when setting
up a business
arrangement by creating
a corporate entity within
a partnership entity
LLC Agreement
Agreement by which owners govern
themselves can have additional asset
protection features written into the
business arrangement
Issues will vary depending on whether
owners are family, strangers, wealthy,
cash-tight, or a mixture
Operating Agreement
Answers the HOW, WHEN, WHO,
WHAT questions of your business
Managemen
t of business
Ownership
Liability
Operating
Agreement can
delineate duties,
roles,
responsibilities,
etc.
Issues to Consider
Employees
Contracts
Trademark
Marketing
Team of Professionals
Take it
Be your own boss
Offices in
www.delarivalaw.com
Find us on
MCALLEN OFFICE
520 WEST PECAN BLVD,
STE G
MCALLEN, TEXAS 78501
(956) 616-4151