Russia Skype Program

Presentation Outline

By

Lori J. Williams

Attorney at Law

Counseling the Small Business Owner:

Tax and Non-Tax Considerations

Counseling the Small Business Owner:

Tax and Non-Tax Considerations

1. Starting a Business: What Steps Are Required?

2. Choice of Entity

3. Taxes

4. Contracts

5. Hiring Employees

6. Record Keeping

I.

STARTING A BUSINESS:

WHAT STEPS ARE REQUIRED?

1. Choice of entity

2. CHOOSE A NAME FOR THE BUSINESS

3. REGISTER YOUR BUSINESS WITH THE APPROPRIATE AGENCY

4. CHOOSE BUSINESS PARTNERS ( IF APPLICABLE)

5. ESTABLISH A RELATIONSHIP WITH A TEAM OF PROFESSIONALS (Attorney, Accountant, Insurance Agent, Bank)

6. COMPLY WITH LOCAL, STATE, AND FEDERAL LAWS

7. REGISTER TO PAY TAXES

8. ESTABLISH A BOOKKEEPING SYSTEM

9. RECORDKEEPING

10. OBTAIN NECESSARY LICENSES AND PERMITS

11. OPEN BANK ACCOUNTS

12. OBTAIN NECESSARY INSURANCE

13. OBTAIN AN EMPLOYER IDENTIFICATION NUMBER

14. CHOOSE A TAX YEAR AND ACCOUNTING METHOD

15. HIRE EMPLOYEES (IF APPLICABLE)

16. OBTAIN TRADEMARKS AND/OR SERVICEMARKS

II.

Choice of entity

Once a decision has been made to go into business, one of the first steps is to decide which business entity to use. This decision should involve both tax and non- tax considerations. Each entity has its own advantages and disadvantages depending on the situation of the particular business.

Factors to address when deciding choice of entity

• Tax Implications

• Liability issues (i.e. tort and contract liabilities)

• Control

• Access to Capital

• Cost of formation and recordkeeping

• Cost of maintaining the business

• Flexibility in structure and operation

• Size and Complexity of the business

• Local, state and federal regulatory requirements

• Future needs of the business

Common forms of business entities

• SOLE PROPRIETORSHIP

• PARTNERSHIPS

• C CORPORATIONS

• S CORPORATIONS

• LIMITED LIABILITY COMPANIES

1. Sole proprietorship

A business owned by a single individual.

The owner is personally responsible for all business debts and liabilities. Business profits will be considered as income and will be taxed at the personal income level.

Advantages

• The Owner has complete control.

• There are minimal legal restrictions or requirements

• The sole proprietor owns the profits and reaps all benefits of ownership

• There is no requirement to pay unemployment taxes.

Disadvantages

• The owner is personally liable for all business debts

• It may be difficult for the owner to obtain long-term financing.

• Whether or not the business succeeds depends on the owner himself/herself.

II. General partnerships

An association of two or more persons to carry on as co-owners of a business for profit. (The existence of a partnership is a question of fact – the intent to become partners is not necessary)

Advantages

• Easy to establish

• There are at least two or more people to handle the workload and responsibilities.

• The partners share all profits and reap all benefits of ownership.

Disadvantages

- Partners are exposed to unlimited liability for business expenses.

• A partner is bound by the actions of the other partners.

• The partners share the decision making authority with the other partners.

• The loss of one partner may dissolve the business.

• Pass-through taxation