KBP LAW

Partnerships

Hello Partnership members!

The scenario is that you have many individuals that want to Embark upon a business Endeavor Together.  That's great! The most important thing is defining everyone’s roles, expectations and obligations.  Defining this at the outset this can be done via a partnership agreement. Many States also allow these partnership agreements to be filed at the state level with the secretary of state in order to create a separate and binding entity. 

The partnership itself this is a useful mechanism because people can have different roles in the partnership that can be active or passive in the Partnership. Some partners can be involved in the day-to-day decision making or there can be Partnerships in which one or two individuals through the decision making and other partners simply invest money or look at it from a high level perspective. Partnerships are a great way to get up and running fast with multiple individuals. If you have a business need that you have to act on fast, you can do so but you’ll still need to look at it speak to an attorney at the Law Offices of Kenneth B. Phillips and its cooperating CPA’s to identify if a Partnership is the best route or another corporate options such as LLC S Corp and c-corp.

LLC

Let's speak about the Limited Liability Corporation for a moment or what is commonly referred to as an LLC.

An LLC is probably the most common entity that many of you watching this video will utilize to embark upon your business endeavor. The flexibility of the LLC is great because you can have one member or you can have multiple members of an LLC. Check the law specific to your States, because there are some nuances in some states that are not as conducive or do not allow a straight LLC formation, so you definitely want to speak to a real estate attorney on the specifics of it.

For many of you, the LLC will be great starting point. It will limit the liability to you personally, however, always remember you still need insurance in addition to the entity itself. You'll need insurance policies for whatever you may be doing and number two it'll create an entity so you can deal with the rest of the world via that entity. You can establish bank accounts, you can sign leases, you can enter into vendor contracts, etc. with that LLC and establish essentially a credit rating and a separate identity for that LLC going forward to do business for hopefully many months and years to come.

S Corporations

S corporation is really a corporation that is set up for the entity in which you deal with others in the World At Large. However, from a taxation standpoint, the S really signifies that it'll be treated as a partnership for taxation. An S-Corp will not be taxed essentially twice, like a C-Corp. can be, It will be taxed once and there will be no taxation at the corporate level. It will only be taxed as the distributions are made to the various stakeholders pursuant to their tax brackets, deductions, and personal situations. S-corps are useful in many circumstances because you can utilize certain personal write-offs and certain tax benefits that you may be entitled to as an individual. However, it's crucial to consult with an attorney and a CPA at the outset. There is some documentation that essentially be needs to be filed almost day one with the IRS in order to properly and timely declare S-corporation status.

C Corporations

Let's speak for a moment about C corporations. C corporations are basically what you see on the stock exchange for the most part. They are corporations that allow multiple shareholders and multiple investors these investors may or may not be involved in the day-to-day business they may be changing on a daily basis. Investors can more easily Buy in to the corporation without changing officers and directors. Some investors can also more easily be bought out. If you're going to have a situation where you're seeking multiple investors a C-corp may be a good entity either at the outset or further down the road for your business endeavor.

One item to closely examine with a C-corp is the taxation implications. Taxes are paid essentially on two levels they're paid on the corporate level and they're paid on any dividends that may be paid out to the individual investors. In addition to an attorney you'll need to consult with a CPA and then also think in the back your head perhaps C-corp is not the most efficient.