WHAT IS THE BEST ENTITY?Written by Garrett Sutton, Esq. and Kathy Spitzer, Esq.
It's probably most frequently-asked question that we hear from entrepreneurs, both experienced and those just getting their feet wet. So, we've put together this report to help you make that selection. Hopefully this information will allow you to make a more informed decision about entity that is right for your business. But don't despair if you don't see your business fitting into any of models set out below -- we also offer a service where your business structure is reviewed and you are provided with our opinion as to best entity in your situation. And, because in many cases, company structure you choose will be based on how it will pay taxes, our top-level review will have your business plan run past a CPA, to make sure all of your options are reviewed. We can also review your existing business structure and offer our suggestions for maximizing your strategy. A review of entities follows: Sub-Chapter "S" Corporations ("S Corp") An S Corp is a great entity for a beginning business that: • will provide a service; • does not have significant start-up costs; • will not need to make major equipment purchases before beginning operations; • will make a sizable amount of money without a great deal of effort and expense; and • expected growth of no more than 75 shareholders, who will all be people who living in United States or who file a U.S. Resident tax return. An S-Corp is structurally same as a C corporation (i.e., it has officers, directors and shareholders), but with one key difference. An S Corp files an election with IRS, called a Form 2553, that provides it with a flow-through tax structure as found in entities such as partnerships and limited liability companies. That means, company's income (and corresponding expenses, write-offs and deductions) will flow through to its shareholders, and be split among them according to each shareholder's ownership percentage. The S Corp's taxes will actually be paid by its shareholders, at their individual tax rates, and in proportion to their individual ownership percentages. From a taxation standpoint, an S Corp is a great fit for a company that offers a service, because in many cases revenues can be split and paid to shareholders in two categories: salary and passive earnings. A flow-through tax structure means that profits and corresponding losses, deductions and expenses are divided up among shareholders, in proportion to their ownership percentages, and reported on each shareholder's personal income tax return. Therefore, if your income from an S Corp is split into two streams, salary and passive, each stream will be taxed differently. Your salary stream will be subject to both income tax and payroll taxes such as medicare and social security. However, passive income stream will be subject only to income tax. So, by taking a reasonable salary from S Corp your tax bracket would be lower than if you were take your entire share of earnings as salary, and remaining share would flow through to you as passive income, and would also be taxed at this lower rate. An S Corp is also a great entity for businesses with low start-up costs, that do not have to purchase a significant amount of assets to begin operations. For example, buying a working laundromat would be an excellent choice for an S Corp. You are purchasing a turnkey business - it's already operating, and you aren't going to be laying out significant cash to get it up and running. So, you will have a pretty good income stream immediately, and that income stream can best be disbursed to you and your partners, if any, through S Corp structure. Two other great matches for an S Corp are network-marketing and Internet-only businesses. In each case, business is likely to have no storefront, low operating costs, and probably doesn't maintain a warehouse. Most network marketing and Internet-only businesses drop-ship from their suppliers directly to end consumer when they are delivering products at all. Again, as these can be high-income, low cost operations, they work great in S Corp structure. Here's another reason we suggest S Corps for many service-oriented businesses -- To avoid being characterized as a Personal Service Corporation, or "PSC" by IRS. PSCs are C corporations that are classified by IRS as providing a service, such as consulting, to general public. Now, as you may know, United States government, in an effort to boost economy and keep business working, assesses C corporations with a pretty low initial rate - 15% on earnings up to $50,000. That's quite a bit lower than you would pay personally, if you were receiving that same $50,000 as salary. And, that 15% rate is also lower than you would pay if your business was an S Corp. So, to head off anticipated
| | The 7 Traits of an Exceptional and Successful EntrepreneurWritten by Robert Moment
The 7 Traits of an Exceptional & Successful Entrepreneur By Robert Moment © 2004 How often have you either referred to or considered expression, “Success is a journey and not a Destination?” Probably many times, yet often being in a hurry to get there, we forget that success is not an end unto itself, but is instead an ongoing process. Though some people seem to have Midas touch and easily turn everything to gold, most of us have to give our endeavors lots of time, effort and sweat of our brow before seeing things come to fruition. The simple truth is that majority of us are simply not born leaders, but become leaders by who we are and actions we take. Consequently, whether or not you’re an established entrepreneur or just starting out on your journey, there are particular traits you’ll usually find operating within exceptional entrepreneur. In fact there are 7 particular traits you’ll generally discover deeply embedded within exceptional and successful businessperson. If you’ve already taken plunge as an entrepreneur, you know that it takes a great deal of planning, development and strategic marketing to succeed. At any given time, there are changes to be considered and new directions to examine. In which case, whether you’re CEO, CFO, Chief Marketer or Chief Solutions Officer of your company, your journey to success is probably full of trials and tribulations. To support you in your journey to success, be willing to open your mind and sense of reasoning as you consider whether these traits are part of your driving force. If they are not yet ingrained within you, I recommend that you give them some thought. THE 7 TRAITS TO SUCCESS 1) Successful Entrepreneurs Gain Respect of their Peers One of first and most obvious characteristics you’ll see operating in an exceptional entrepreneur is an equitable and unbiased disposition . Plain and simple successful entrepreneur recognizes that no one is above or below. With an attitude of respect for others, successful entrepreneur gains respect from everyone they encounter. Strategies, attitudes and methods filter down to each person and reflect on all actions and activities. A successful entrepreneur gives everyone space to be great. No matter how effective or beneficial your expertise, becoming a successful entrepreneur requires building up of your character muscles, traits and habits, which correspondingly make your dreams a reality. 2) Successful Entrepreneurs Believe and Trust in Themselves The savvy entrepreneur is good at trusting his or her own ideas and instincts. Starting out as an entrepreneur requires persistence, determination and a high level of self-discipline. Continuing as a successful entrepreneur requires even more persistence, determination and self-discipline. The wise and successful entrepreneur knows this and works hard at developing their level of confidence. If you have a strong code of ethics and believe in yourself, then your ideas can work. Having desire and passion are first steps on your journey; getting there requires believing in yourself. 3) Successful Entrepreneurs Follow a Plan The successful entrepreneur follows a plan. Haphazard or trial and error have no place for triumphant entrepreneur, for no one gets to his or her destination without a map or a guide to follow. That doesn’t mean you won’t go off course if another road seems better, but it’s still more effective to have a plan in place. Most successful entrepreneurs start out by writing a basic business plan that acts as impetus and guide for their endeavors. It doesn’t have to be fancy or lengthy but it should include marketing strategies, goals, intentions, ideas and why you can do better than your competition. A business plan should be reviewed and updated periodically for each new idea stirs and inspires other ideas.
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