Whether you have been a business owner for decades or are new to the challenge, you should consider evaluating your entity’s legal structure. Relevant rules, laws and guidelines are constantly changing that could influence your business goals, formation and taxes.
Forms to Consider
Nearly 90 percent of today’s corporations employ less than 20 people. The most common entity structure for small businesses is a limited liability company (LLC), which allows for a flow through of tax items, much like partnerships, while also offering their members protection from personal liability for the debts of the LLC’s business. However, depending on your company’s specific needs, there may be reasons to consider alternative formations.
Financial and/or legal benefits may pass to a corporate entity that does not allow the income and debt liability to flow through the business to the owner(s). A legal professional who specializes in corporate and business transactions is best to guide you, along with your CPA, as to what is the best entity for you in today’s ever-changing environment.
Examples of What May Result From a Checkup
Often, an established business may benefit by adding entities to its structure. For instance, adding a separate real estate entity and/or an equipment leasing company may allow for additional legal and tax protections.
Additionally, owners may choose to modify their business structure to permit eligibility pursuant to a Section 1202 qualified small business stock enterprise as set forth under the Internal Revenue Code, thereby providing an opportunity to avoid some or all of the gain realized on a stock after a period of 5 years.
Whether you are starting up a new business or simply want to make sure your current business is structured properly to meet your business and tax planning goals, you should seek out legal and tax professionals to assist in maximizing all available opportunities.