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48 • WRAPS • 2 0 1 9 STARTING A VEHICLE WRAP BUSINESS • How much will each partner contribute? • Who is going to perform the work? • How much will each partner be paid for his/her contri- bution? • How will profits be divided? • If a partner makes a loan to the business, will interest be paid? • Who owns the customer list and how will the assets be divided if the partnership dissolves? Sounds like a pre-nuptial agreement, doesn't it? And not by accident, either. If these questions can't be answered while everyone is getting along, you can bet things will get uglier than a forgotten box of leftovers in the fridge, if you become at-odds with a partner. If partners are having difficulty finding the right words to describe something in such a agreement, use examples to illustrate what you mean. There is one last type of partnership to consider. The lim- ited liability partnership (LLP) is a fairly new concept, but creates a legal structure that offers the advantage of a general partnership and the liability protection of a limited partner- ship. Because there are so few of these companies—and there hasn't been sufficient litigation brought before the courts for any substantive evaluation—the jury is still out on the viability of this selection. The major disadvantage of a limited partnership is the complexity of setting one up. You should consult a lawyer when writing the partnership agreement. For example, limited partnership interests are considered securities and must com- ply with state and federal securities laws. TAKE IT TO THE LIMIT A hybrid form of partnership—the limited liability company (LLC)—has steadily been gaining in popularity since the early 1980s because it allows owners to take advantage of the ben- efits of both the corporation and partnership forms of busi- ness. The advantages of this business format are that profits and losses can be passed through to owners without taxation of the business itself while owners are shielded from personal liability. The LLC is a creature of state law and you should be care- ful to read the statutes of the state in which it operates. LLCs work best for small to mid-sized companies that want to shield the owners' personal assets from business-related debts and lawsuits. LLCs do not issue shares of stock. Their owners are called "members" instead of shareholders. For that reason, LLCs may find it difficult to attract outside investors. LIVING LA VIDA, INC. When a business incorporates, it creates an entity that has a life of its own: It has its own federal tax ID number. It can buy and sell property in the corporate name. And it has several tax ad- vantages that are exclusive to corporations. However, the draw- backs of incorporating include: • the cost to create the corporation—you will need to file Articles of Incorporation in your Secretary of State's office; • the administrative effort to maintain it—such as filing the minutes of the Board of Directors meeting; • the fact that majority shareholders can overpower minor- ity shareholders; and • most shareholders will have little say in the company's day- to-day operations. If you are looking to raise capital for your company, inves- tors tend to take companies that incorporate more seriously than they do sole proprietorships and partnerships. Almost 20 percent of companies in the U.S. have taken formal steps to in- corporate. If you decide to do so, there are two types of entities from which to select—a sub-chapter S corporation (S-Corp) or a C corporation. Still, an S-corporation may be the way to go for many ve- hicle wrap businesses, provided they can meet the qualifying criteria. S-corporations are limited to 75 shareholders—all of whom must be individuals or certain trusts—and there has to be unanimous consent among of the shareholders before the 15 th day of the third month of its taxable year to qualify for that year. In an S-corporation, all of the profits and losses flow through directly to the shareholders and are not subject to "double taxa- tion" as is the case with a C-corporation. Double taxation occurs when a C-corporation has profits at the end of the year, pays taxes on those profits, then makes dividend distributions to the shareholders, on which the shareholders must pay taxes. C-cor- porations can offer significant benefits to their owners (over S- corps), including publicly traded stock, unrestricted retirement plans and medical reimbursement plans. CHOOSE WISELY So which entity is best for your company? The decision is an important one and should not be made just because one hap- pens to be easier than another. Your decision should be based on facts, and on understanding the type of ownership and control you desire, along with the potential liabilities for which you are setting yourself up . . . rather than just by chance. Take the time to consult professional advice in this matter, and avoid being influenced by a friend's or relative's experi- ences. Check out the websites or for online help as well. Often, the cost of setting up an LLC or Corporation is a few hundred dollars or less, plus your state's filing fees. Think of it this way. If you had a choice between borrowing someone else's used shoes or buying a new pair custom-fitted to your own two feet, what would you do? Smart decision. Good luck!

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