Sarah Uhrik
Starting a new business is exciting, but there are a lot of things to consider as you build its foundation, including its legal structure. Determining how your business will be set up before you begin can save you time and money and prevent legal roadblocks. Business laws, regulations and requirements change frequently, and an appointment with tax attorney Sarah Uhrik can help ensure that your business is on the right track from the beginning.
With a Master of Laws (LL.M.) in taxation, Ms. Uhrik understands the benefits and possible ramifications of the different business structures and explains in plain terms how your designation can affect how your business functions and is taxed, and what advantages and disadvantages of each may apply to your specific situation.
Which Structure is Best for Your Business?
Legally, nearly all businesses fall under one of three categories:
1. Sole Proprietorship – the simplest of all legal business structures, sole proprietorship requires very little money, paperwork and licensure to start operating. Its advantages are that it’s easy and inexpensive to set up, and easy to dissolve should you want to. As the sole owner, you receive all of the profits – or endure all of the losses - which are reported on your individual income tax return. You are the sole authority on all business decisions and in most cases can utilize your business assets with minimal tax consequences. Of course, the major drawback of a sole proprietorship is that you and you alone are responsible for the business’s debts, even if paying them demands that you deplete your personal assets. You also miss out on the tax benefits offered by corporate status, and may have a harder time getting a business loan or growing your business if that is your goal. Lastly, choosing a sole proprietorship as your choice of entity leaves you and your business open for various types of liability.
2. General Partnership – designed for two or more co-owners, general partnerships let you share the work, benefits and costs with others, and expand your chances of achieving meaningful growth. It is vitally important to pick the right partners in this sort of venture – like a marriage, there are legal obligations that are assumed in this arrangement, so you want to make sure your goals, ideals and plans are unified. “Oftentimes, people form partnerships without considering how much they have in common with their partners beyond an idea for a business,” says Ms. Uhrik. “They may agree on what their business will create, but not how they will go about setting up the business, how they will reinvest profits, what growth they seek, how they will deal with debt, and other crucial decisions. Meeting with an experienced professional can help prospective partners answer these questions beforehand, so a unified approach can be outlined up front.” A Partnership Agreement is a legally binding document that defines each partner’s role in the business and acts to protect everyone’s interests. “I highly recommend one for anyone entering into a business partnership,” says Ms. Uhrik. As with a sole proprietorship, partners are personally responsible for any and all debts and taxes incurred by the business.
Limited partnerships are another variation, and are designed to limit the liability of a specific partner or partners. A limited partnership may be warranted in cases where a partner wishes to invest financially but not engage in the day-to-day operations or be personally liable for debts incurred by the business.
3. Corporation – the most formal and detailed of all the structures, a corporation is formed as a unique legal entity whose ownership is divided into shares of company stock. In most cases, the corporation’s stockholders are protected from personal liability for the corporation’s debts and certain types of liabilities. Corporate status offers the greatest potential for growth and sustainability, attracting investment capital, securing business loans, hiring talented management, and other benefits. However, corporations typically fall victim to double taxation, wherein both the profits earned by the business and the dividends paid to the stockholder-owners are taxed. “That situation can be avoided by structuring a business as an S Corporation,” says Ms. Uhrik. “I understand the terms, requirements, liabilities, taxation and other details of the current S Corporation structure, so owners can make a fully-informed decision about what is best for them and their business.”
Other Options
In the State of Florida, any of these styles of business ownership can be set up as a Limited Liability Company (LLC), which can offer different or additional tax advantages that can benefit certain businesses and their owners. Additionally, creating a Limited Liability Company under Florida law still allows the new business owner the flexibility of utilizing various tax elections to maximize growth and mitigate income taxation.
Get your new business off to a smart start with the tax and legal information, filing requirements and other components you need. An appointment with Sarah Uhrik can help you structure your business for optimal protection and ultimate growth.