<p>One of the side effects of the various corporate restructuring and early retirement programs in abundance today is an increase in new small businesses.&nbsp; Many newly laid-off or retired executives open their own businesses. &nbsp;&nbsp;</p> <p>There are generally five major concerns when choosing the form of a new business; liability, financing, management, continuity and taxes.&nbsp; Too many budding entrepreneurs focus only on the tax aspects.&nbsp;</p> <p>The question of liability is very important in today's litigious society.&nbsp; Generally, a corporation affords the shareholders protection from the creditors of the company.&nbsp; The shareholder&rsquo;s liability is limited to his/her investment in the corporation.&nbsp; To achieve this limited liability status, various legal requirements must be followed.&nbsp; Ignoring the "technicalities" can result in a corporate creditor being able to "pierce the corporate veil" and go after the shareholder&rsquo;s personal assets.&nbsp; Also, professionals can't use corporations to shield themselves from malpractice liability.&nbsp; General partnerships and sole proprietorships do not offer limited liability to owner/managers.&nbsp; However, partnerships and sole proprietorships are often easier to establish and often have less "red tape" associated with them.</p> <p>All businesses need to raise money for operations.&nbsp; The use of the corporate form allows the company to sell shares of stock to new investors to raise money.&nbsp; Corporate ownership may also make it easier to recruit, retain and reward key employees through awards of common stock.&nbsp; Some have argued that corporations may find it easier to borrow than an unincorporated business.&nbsp; However, shareholders are often asked to personally guarantee corporate debt.</p> <p>The management of the business is also a concern.&nbsp; Theoretically, a corporation is run by its board of directors.&nbsp; As a practical matter it may make little difference if the business is controlled by a single individual.&nbsp; However, if more than one person will be an owner of the business, the dynamics of controlling a business through a consensus of partners versus the use of a board of directors must be carefully reviewed.</p> <p>Continuity is also an issue.&nbsp; A corporation may have a perpetual existence.&nbsp; Sole proprietorships die with the owner.&nbsp; Depending on state law and the planning that's been done, the death of a partner may result in the dissolution of the partnership.</p> <p>There are basically two types of corporations for tax purposes; &ldquo;C&rdquo; corporations and S corporations.&nbsp; A "C" corporation is a separate taxpaying entity.&nbsp; C Corporations have graduated federal tax rates from 15% to over 35% (although professional corporations pay a flat 35%).&nbsp; C Corporations are subject to the corporate Alternative Minimum Tax.&nbsp; C Corporations are subject to the accumulated earnings tax.&nbsp; Under S Corporations, any income or loss flows through to the personal returns of the shareholders.&nbsp; In effect, regular corporate income is taxed twice, once to the corporation and again to the shareholders.&nbsp; S Corporations are not taxed twice or subject to the corporate Alternative Minimum Tax; however, the individual shareholders are subject to the individual AMT and corporate items may have an impact.&nbsp; S corporations are also not subject to the accumulated earnings tax.</p> <p>Finally, new forms of business organization are being developed in various states including the limited liability company, corporation and partnership.&nbsp; These new developments and issues discussed should be fully explored before deciding on the proper form for a new business.</p> <p>Of course, this brief article is no substitute for a careful consideration of all the advantages and disadvantages of this matter in light of your unique personal circumstances.&nbsp; Before implementing any significant tax or financial planning strategy, contact your financial planner, attorney or tax advisor as appropriate.</p> <p>This material was prepared by Raymond James for use by Christopher Jorgensen of CS Jorgensen &amp; Co., Inc. /Raymond James Financial Services, Inc. Member FINRA/SIPC.</p> 2009-10-20T20:35:45Z -1.017 109 7031 true 1 23406 to-inc-or-not-to-inc-that-is-a-question 0 2009-10-31T11:48:40Z 2009-10-31T16:51:20Z

Among the first questions a new business owner must ask is, "How will I do business, as a corporation, proprietor, or partnership?"

1 2009-10-31T16:51:39Z