what's the best entity? solve the mystery of legal organization
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DESCRIPTION
Small business owners typically know a lot about the operation of their business, but frequently struggle with managing the financial part of the business. Even though they use an accoutant, a bookkeeper or financial software, their lack of financial skills are a continuing obstacle to growth and sound decision making. In this course Small Business Owners will learn to collect, organize and use their financial information to make better decisions. Understanding the numbers and their complete impact on cash flow, profitability and company value will give you a whole new perspective on running and growing your business.TRANSCRIPT
Sigma FreePresents…
Provided by Sigma College of Small Business, Inc.
What’s the Best Entity?Solve the Mystery of Legal Organization
Copyright 2010, Sigma College of Small Business, Inc.2
Introductions
Keynote TopicWhat’s the Best Entity
Solve the Mystery of Legal Organization
Keynote ConclusionWhat’s the Best Entity
Solve the Mystery of Legal Organization
Break – Refreshments and Networking
Ask Questions Any Time
Agenda
What's the Best Entity? Solve the Mystery of Legal Organization
Copyright 2010, Sigma College of Small Business, Inc.3What's the Best Entity? Solve the Mystery of Legal Organization
Exit Strategy
Entity Structure
Value Mod
el
Marketing
Tactics
Implem
entation
Business Strategy
–Perspe
ctive
–Organization
–Incentive
–App
roach
–Actions
Five Pillarsof a Business Strategy
Copyright 2010, Sigma College of Small Business, Inc.
Legal Organization
• Considerations– Liability – accident and financial
– Taxes – Income, payroll, estate
– Investment , ownership transfer and management
• Types of Organization– Sole Proprietor and Partnership
– “C” Corporation and “S” Corporation
– Limited Liability Company
4What's the Best Entity? Solve the Mystery of Legal Organization
Legal organization is an important decision made to support your personal and business goals
Sole Proprietor Partnership Limited
Partnerships Limited Liability Company S‐Corporation C‐Corporation Sole Proprietor Partnership Limited
Partnerships Limited Liability Company S‐Corporation C‐Corporation Sole Proprietor Partnership Limited
Partnerships Limited Liability Company
Copyright 2010, Sigma College of Small Business, Inc.
Terminology
• Personal Tax Rate – incremental tax rate on personal return
• Business Tax Rate – incremental tax rate on business return
• Payroll Taxes – Social security and Medicare taxes
• Pass Through – Business profit taxed on personal taxes
5What's the Best Entity? Solve the Mystery of Legal Organization
• Business Liability – company assets that are at risk
• Personal Liability – personal assets that are at risk
• Limited Liability –personal liability is limited for some reason
• Active Investment – investor actively involved in management
• Passive Investment – investor not involved in management
Liability
Taxes
Owne
rship
Copyright 2010, Sigma College of Small Business, Inc.
Liability
The English FlyerMaster John Fowles
• General Partnership
• £250 for 10% “ownership”
• Unlimited joint and several liability
• Each investor personally liable for all debts and obligations
The English RoseSir Richard Starkley
• Corporation
• £250 for 10% “ownership”
• Limited to £250 liability
• Each investor’s liability limited only to the £250 put into corporation
6What's the Best Entity? Solve the Mystery of Legal Organization
“Own Your Own Corporation”, Garrett Sutton, Esq.,
Copyright 2010, Sigma College of Small Business, Inc.
TAXESLegal Organization
What's the Best Entity? Solve the Mystery of Legal Organization
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Copyright 2010, Sigma College of Small Business, Inc.8What's the Best Entity? Solve the Mystery of Legal Organization
Copyright 2010, Sigma College of Small Business, Inc.9What's the Best Entity? Solve the Mystery of Legal Organization
Copyright 2010, Sigma College of Small Business, Inc.10What's the Best Entity? Solve the Mystery of Legal Organization
Copyright 2010, Sigma College of Small Business, Inc.
Entity FlexibilityMillennium Salsa
Thelma
• Investing– 2 Years low wages
– Management skill
• Wants– 1/3 of business
– Job
Pepe
• Investing– $200,000
• Wants– 1/3 of business– Use of losses– First $300k
of profit
11What's the Best Entity? Solve the Mystery of Legal Organization
Hans
• Investing– Salsa Recipe
– Offer to help
• Wants– 1/3 of business
– Job
• Corporation requires stock ownership, equitable pass through of profit and loss• LLC Flexibility allows financial and management desires to be met
From “Own Your Own Corporation”, Garrett Sutton, Esq.,
Copyright 2010, Sigma College of Small Business, Inc.
Investment, Transfer and ManagementJim Aaron ‐ 17
• Interests– Girls
Chris ‐ 15
• Interests– Rock &
Roll
12What's the Best Entity? Solve the Mystery of Legal Organization
Bob ‐ 16
• Interests– Sports
• Legal Entities can help with transfers of assets• Management Control• Financial
From “Own Your Own Corporation”‐ Garrett Sutton, Esq.,
Copyright 2010, Sigma College of Small Business, Inc.
“I’m Going to Start a Business”Legal Organization Example
Generate Income for Myself
• S‐Corp or LLC– Liability Protection– Cash can pass through
without double taxing– Losses pass through
• May be a draw for some investors
– LLC provides more flexible management and ownership options
– No “corporate” or foreign investors for S‐Corp
Build Business for Growth
• C‐Corp– Liability Protection– Cash kept in company for
growth taxed at corporate rate – 15% for <$50k
• Personal Service Corp – 35%
– Dividends taxed to shareholders
– Benefits to salaried shareholders not part of salary
– Corporate Investors
What's the Best Entity? Solve the Mystery of Legal Organization
13
Copyright 2010, Sigma College of Small Business, Inc.
Legal OrganizationGeneral Strategies• LLCs and S‐Corps
– Minimum salary with higher distributions• Reduce the payroll taxes
– Strategy for:• Max cash out of business• Pass through losses
• C‐Corp– Higher salary, low distribuitons, high benefits
• Only double taxed on distributions– Strategy for:
• Retaining cash for growth• High value exit strategies (IPO or sale to public company)• For Personal Service Corporation – Zero Profit!
• Limited Partnership– Allow gifting and investment while maintaining control– Manage liability through a corporate general partner
What's the Best Entity? Solve the Mystery of Legal Organization 14
Copyright 2010, Sigma College of Small Business, Inc.What's the Best Entity? Solve the Mystery of Legal Organization
Critical Business Areas
Strategy and Planning
Marketing and Sales
Accounting and Finance
Operations and Quality
Leadership and Administration
Technology and Innovation
Sigma College of Small Business
• Focus Workshops– Leveraging the Online Social Network
• Tuesday, July 13th, 2010
• 10am –2pm, $199
• Upcoming SigmaFree Classes– 6/15 – What’s Your Business? The Art of an
“Elevator” Pitch
– 6/22 – Setting the Course! Build Your Business Strategy
– 6/29 – Big Spending Decisions! Use More that a Gut Feel
15Dedicated to the Learning Needs of Small Business!