Sign & Digital Graphics

June '18

Issue link: https://nbm.uberflip.com/i/982508

Contents of this Issue

Navigation

Page 34 of 88

30 • June 2018 • S I G N & D I G I T A L G R A P H I C S RUNNING THE BUSINESS everyone is getting along, you can bet things will get uglier than a forgotten box of leftovers in the fridge if you come to be at odds with a partner. If partners are hav- ing difficulty finding the right words to describe something in such a document, use examples to illustrate what you mean. As with a sole proprietorship, a busi- ness structured as a partnership does not continue after the partners die, leave or go broke. Likewise, partners are legally liable for each others' actions, and personal assets aren't protected from creditors. The difference between a general partnership and a limited one is the degree of control and liability. In a lim- ited partnership, at least one partner is named a general partner and the oth- ers are named limited partners. Limited partners have limited liability—up to the amount of his or her contribution plus potential income—while general part- ners have general liability including all of the debts of the partnership. General partners basically run the business day- to-day. 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 comply with state and federal securities laws. Finally, both types of partnerships are considered "pass-through" entities and each partner is taxed directly upon his/ her share of the profits. Living La Vida, Inc. When a business incorporates, it cre- ates 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 advantages that are exclusive to corporations, such as pension and profit-sharing programs. If you are looking to raise capital for your company, investors tend to take companies that incorporate more seri- ously than they do sole proprietorships and partnerships. Almost 20 percent of companies in the U.S. have taken formal steps to incorporate. If you decide to do so, there are three types of entities from which to select—a limited-liability com- pany (LLC), a sub-chapter S corporation (S-Corp) or a C corporation. The latter two are code names given by the Internal Revenue Service. LLCs first gained popularity in the early 1980s when businesses wanted the advantages of a corporation and a part- nership, but did not want the disadvan- tages. The LLC is a creature of state law and you should be careful to read the statutes of the state in which you incor- porate. 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 rea- son, LLCs may find it difficult to attract outside investors or motivate employees because of the absences of stock options. The drawbacks of incorporating include: • The cost to create the corpora- tion—you will need to file Articles of Incorporation with your Secretary of State's office; • The administrative effort to main- tain it—such as filing the minutes of the Board of Directors meeting; • The fact that majority sharehold- ers can overpower minority sharehold- ers; and • That most shareholders will have little say in the company's day-to-day operations. Still, an S-corporation may be the way to go for many sign and graphics businesses, provided they can meet the qualifying criteria. S-corporations can have no more than 75 shareholders—all of whom must be individuals or certain trusts—and there has to be unanimous consent among the shareholders before the 15th day of the third month of its taxable year to qualify for that year. In an S-corporation, all of the prof- its and losses flow through directly to the shareholders and are not subject to "double taxation" as is 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 sharehold- ers must pay taxes. C-corporations can offer significant benefits to their owners (over S-corps), including publicly traded stock, unre- stricted retirement plans and medical reimbursement plans. Something New on the Horizon There is one final type of entity to consider. The limited liability partner- ship (LLP) is still a fairly new concept, but creates a legal structure that offers the advantage of a general partnership and the liability protection of a limited partnership. Because there are relatively 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. So which entity is best for your com- pany? The decision is an important one and should not be made just because one happens 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 poten- tial liabilities for which you are setting yourself up... rather than just by chance. Take the time to consult profes- sional advice in this matter, and avoid being influenced by a friend's or rela- tive's experiences. 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! SDG Make it Your Business CONTINUED

Articles in this issue

view archives of Sign & Digital Graphics - June '18