Business Structure & Entity Consulting
One of the most important decisions entrepreneurs face is selecting what type of entity should be utilized for their new business venture. A business entity is created for an organization’s tax and legal purposes. Whether you choose to be a Corporation, an S-Corporation, a Partnership, a Limited Liability Company or a Sole Proprietorship, your choice will have tax and business implications. All too often business owners set themselves up in business and don’t fully understand the implications of this selection until they begin facing challenges. There are subtle nuances between entities, and in some cases, a company may be able to take advantage of more than one business structure. That’s why it can be extremely advantageous to hire a business structure consultant for advice before you decide how to set up your business.
Get the Help You Need with Choosing Your Type of Entity Business:
The business structure you select will not only determine who will be taxed and how, but it also determines liability and record-keeping. The establishment and taxation of business entities varies by state. These are the different types of structures to keep in mind when deciding how to set up your organization:
- Sole Proprietorship -- A sole proprietorship is the simplest type of business entity. There is just one owner of the company, and the owner is solely responsible for all of its assets and liabilities. This entity is easy to establish and requires minimal record-keeping.
- Limited Liability Company (LLC) -- Limited Liability Companies can have multiple owners or “members”. Members of the LLC can report profits and losses in their personal taxes, however, members of the LLC are generally not personally responsible for debt incurred by the LLC. Setting up your business as an LLC can sometimes require less recordkeeping than a corporation, but more than a sole proprietorship. It also offers a lot of flexibility as far as taxation.
- Corporation -- The structure of a Corporation is best for large organizations with multiple employees. The Corporation is an independent legal entity owned by its shareholders, and it requires extensive recordkeeping. The shareholders’ personal assets (besides stock in the company) are protected from company debt. Corporations have the advantage of raising capital through stock, and personal and corporate tax responsibilities are completely separate. The pitfall of a corporation is a double taxation.
- S Corporation -- To become an S Corporation, you must first be a corporation or an LLC. The S Corporation is an entity that is only designated by the IRS, and it was created for tax purposes only. The S Corporation structure allows profits and losses to pass through a personal tax return, and double taxation between the shareholders and the corporation is avoided. The S Corporation structure is also a great option for a small company, but more record-keeping is required than is necessary with a Sole Proprietorship or LLC.
- Partnership -- A partnership is a business entity with more than one owner or partner. There are three common types of partnerships: General Partnerships, Limited Partnerships and Joint Ventures. A partnership is fairly easy to form and may have the added advantage of sharing resources to create capital. However, partners are personally liable for business debt, just as the owner of a sole proprietorship.
Choice of Entity - Tax Implications
|Filed on IRS Form:|
|Net Earnings Example:||
$30k / $xxk
|FICA TAX (15.3%)|
|Federal Income Tax||
Income Tax Rate
Income Tax Rate
Income Tax Rate
Income Tax Rate
| Franchise Tax
-Assessed Once Gross
-Receipts Exceed $1 Million
|Home Office Deduction|
| Legal Protection Provided
-by Entity Structure **
|Flexibility re: Capital Distributions|
|Basis Created by Debt of Non-Owner|
|Annual Board Meetings & Minutes Required|
|Commingling of Funds|
|Affect on Social Security Benefits|
|1040es Payments (Qtly) Required?|
**This analysis is provided to represent the tax implications regarding entity type and is intended to provide general information. While Chandler & Knowles CPAs, PLLC, always makes every effort to offer accurate information, errors may very well occur due to the nature of the subject matter and our interpretation of any laws and regulations involved. We provide this information "as is." The information presented should not be construed as legal, tax or accounting advice. You should consult with our office or other professional advisors familiar with your situation for advice concerning specific tax or other matters before making any decision.
Common Changes in Business Structure
Changes in your corporate structure are often needed with growth and after a buyout, merger or change in ownership. Adding or eliminating a partner is a common occurrence that can require a change in tax structure. Here are some common changes in business structuring that we help our clients through:
C Corporation to an S Corporation:
We often advise and help clients through the process of changing from a C Corporation to an S Corporation to avoid double taxation. C Corporations pay taxes on their profits, and the owners or stakeholders of the company must also pay taxes for their earnings from the business on their personal tax returns. Owners and shareholders of S Corporations only pay taxes on their income reported on their individual tax returns.
LLC to a Corporation:
Owners of LLCs may want to become corporations as they grow. There are a number of reasons to do this, two of which are to attract investors and to share equity. The process involved in making this switch varies by state. In some states a corporation must be formed in addition to the LLC in order for the change to be made. In Texas, an LLC can be converted directly into a corporation. There are also one-time tax consequences as a result of this conversion that we help our clients work through.
Partnership to an LLC:
This is similar to going from a sole proprietorship to an LLC. Business partners decide to form an LLC for the same reasons an individual might: the owners aren’t personally responsible for debt and other liabilities the company may incur, the company will survive the death of either of the partners, and the partners can avoid double taxation.
These are just a few of the possible scenarios for changing a corporate structure. If your business is still in the idea phase, or if your company is experiencing a change in ownership, growth or suffering from financial or tax burdens, the consultants at Chandler & Knowles CPAs are happy to discuss corporate structuring with you and help you determine the best business structure to move ahead with as much financial and tax benefit as possible.
How Chandler & Knowles CPA Can Help You Form Your Business Structure
Choosing your business structure is the first step in forming a new company. Once you have established the way in which your business will be run, you will need to construct a business plan. As each type of business structure has different tax reporting responsibilities, Chandler & Knowles can guide you in the best way to make certain you meet all of the requirements in a timely manner. You will want to take advantage of the tax benefits of your particular business structure.
Industries We Serve
Chandler & Knowles CPA has a vast amount of experience in assisting several specialty industries. This makes us the best choice for your CPA. Industries we serve are:
- Physicians - Setting up a business structure for a physician is a unique situation. Chandler & Knowles will advise you on the right course of action using the details of your new or expanding practice. This is vital to the future of your business as well as your future retirement.
- Dentists - Whether starting a new practice or purchasing an existing one, Chandler & Knowles can help you navigate the muddy waters of this important endeavor. If purchasing an existing practice, we can help you review financials and give you the tools to make your practice successful.
- Real Estate - The real estate field can be a roller coaster. This business is one that requires strategy, budgeting and forecasting on an ongoing basis. Chandler & Knowles has the expertise to guide you into a profitable business.
- Veterinarians - Being a veterinarian is rewarding and feeds a passion for animals. However, the behind the scenes work is where it is the most difficult. We can assist you in getting and keeping your practice thriving.
- Attorneys - The world of legal work is intricate and detailed. While attorneys are often more knowledgeable about business structure, having a CPA to handle the ins and outs will take the weight off of an already overloaded mind.
Speak with a Professional CPA Today
Contact us by filling out our form or calling 817-430-3000, or visit our location in Flower Mound. Let one of our professional business structure consultants at Chandler & Knowles CPAs help guide you through this process so that your business benefits from its structure and maximizes its profits.
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