BarCamp 2010, LLCs vs. Corporations: pick one and start TODAY

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  • BarCamp 2010, LLCs vs. Corporations: pick one and start TODAY

    1. 1. Corporations vs LLCs Why you should pick one and start NOW! b y K e v i n T h o m p s o n w w w. l a w o f f i c e k t. c o m @ k e v i n _ t h o m p s o n w w w.f a c e b o o k . c o m / k e v i n t h o m p s o n #bcn10entity
    2. 2. Engl!h Rose
    3. 3. What are my choices? • Sole Proprietorship • General Partnerships • Limited Partnerships • Limited Liability Companies • “S” Corporations • “C” Corporations
    4. 4. What are my choices? • Sole Proprietorship • General Partnerships • Limited Partnerships • Limited Liability Companies • “S” Corporations • “C” Corporations
    5. 5. Considerations
    6. 6. Considerations Type of business Long term goals How many owners Will the business borrow money Will the business EVER seek investors Will another company own a share What restrictions do owners want on exit plans
    7. 7. “S” Corporation
    8. 8. “S” Corporation Advantages
    9. 9. “S” Corporation Advantages Simple to form
    10. 10. “S” Corporation Advantages Simple to form Flow through taxation
    11. 11. “S” Corporation Advantages Simple to form Flow through taxation No self-employment tax
    12. 12. “S” Corporation Advantages Simple to form Flow through taxation No self-employment tax Limited liability
    13. 13. “S” Corporation Advantages Simple to form Flow through taxation No self-employment tax Limited liability Low cost formation and annual fee ($100 / $10)
    14. 14. “S” Corporation
    15. 15. “S” Corporation Disadvantages
    16. 16. “S” Corporation Disadvantages Restrictions on ownership
    17. 17. “S” Corporation Disadvantages Restrictions on ownership Cannot own interest via a business, must be US citizen
    18. 18. “S” Corporation Disadvantages Restrictions on ownership Cannot own interest via a business, must be US citizen No preferred stock offerings
    19. 19. “S” Corporation Disadvantages Restrictions on ownership Cannot own interest via a business, must be US citizen No preferred stock offerings Hall Income Tax a/k/a Tennessee’s state income tax
    20. 20. Who would want a S-Corp? Home office No employees One person band Free lance work Zero desire for funds
    21. 21. “C” Corporation
    22. 22. “C” Corporation Advantages
    23. 23. “C” Corporation Advantages Protection from liability
    24. 24. “C” Corporation Advantages Protection from liability Multiple classes of stocks
    25. 25. “C” Corporation Advantages Protection from liability Multiple classes of stocks Hundreds of years of legal precedence
    26. 26. “C” Corporation Advantages Protection from liability Multiple classes of stocks Hundreds of years of legal precedence Preferred for going public
    27. 27. “C” Corporation
    28. 28. “C” Corporation Disadvantages
    29. 29. “C” Corporation Disadvantages Double tax
    30. 30. “C” Corporation Disadvantages Double tax Many formalities i.e. corporate resolutions, annual meetings, etc.
    31. 31. “C” Corporation Disadvantages Double tax Many formalities i.e. corporate resolutions, annual meetings, etc. Lack of flexibility: strict legal boundaries re. shares.
    32. 32. Who would want a C-Corp? Multiple employees Angel or Venture funds Visions of going public Stock incentives Multiple rounds of funding Legal protections Anticipate a stock swap merger
    33. 33. Stuff you need
    34. 34. For Office Use Only C HAR TE R (For-Profit Corporation) Corporate Filings 312 Eighth Avenue North 6th Floor, William R. Snodgrass Tower Nashville, TN 37243 The undersigned acting as incorporator(s) of a for-profit corporation under the provisions of the Tennessee Business Corporation Act adopts the following Articles of Incorporation. 1. The name of the corporation is: [NOTE: Pursuant to Tennessee Code Annotated § 48–14–101(a)(1), each corporation name must contain the words corporation, incorporated, or company or the abbreviation corp., inc., or co.] 2. The number of shares of stock the corporation is authorized to issue is: 3. The name and complete address of the corporation's initial registered agent and office located in the State of Tennessee is: ( Name ) TN ( Street Address) (City) (State/Zip Code) ( County ) 4. List the name and complete address of each incorporator: ( Name ) ( Include: Street Address, City, State and Zip Code ) ( Name ) ( Street Address, City, State and Zip Code ) ( Name ) ( Street Address, City, State and Zip Code ) 5. The complete address of the corporation's principal office is: ( Street Address ) ( City ) ( State/County/Zip Code ) 6. The corporation is for profit. 7. If the document is not to be effective upon filing by the Secretary of State, the delayed effective date and time are: Date , , Time (Not to exceed 90 days.) 8. Other provisions: Signature Date Incorporator's Signature Incorporator's Name (typed or printed) SS-4417 (Rev. 9/04) Filing Fee: $100 RDA 1678
    35. 35. Action of Incorporator Consent of Board of Directors Consent of Shareholders Bylaws Sub-S election (if you want “S” corporation)
    36. 36. LLC
    37. 37. LLC Advantages
    38. 38. LLC Advantages Flow through taxation
    39. 39. LLC Advantages Flow through taxation No limitation on ownership
    40. 40. LLC Advantages Flow through taxation No limitation on ownership Can create multiple classes of shares and SERIES
    41. 41. LLC Advantages Flow through taxation No limitation on ownership Can create multiple classes of shares and SERIES Great if raising capital
    42. 42. LLC Advantages Flow through taxation No limitation on ownership Can create multiple classes of shares and SERIES Great if raising capital No Hall Tax (if owners are TN residents)
    43. 43. LLC Advantages Flow through taxation No limitation on ownership Can create multiple classes of shares and SERIES Great if raising capital No Hall Tax (if owners are TN residents) More flexibility, fewer legal impediments
    44. 44. LLC Advantages Flow through taxation No limitation on ownership Can create multiple classes of shares and SERIES Great if raising capital No Hall Tax (if owners are TN residents) More flexibility, fewer legal impediments Can be converted to a corporation
    45. 45. LLC Advantages Flow through taxation No limitation on ownership Can create multiple classes of shares and SERIES Great if raising capital No Hall Tax (if owners are TN residents) More flexibility, fewer legal impediments Can be converted to a corporation Flexibility in management
    46. 46. LLC Advantages Flow through taxation No limitation on ownership Can create multiple classes of shares and SERIES Great if raising capital No Hall Tax (if owners are TN residents) More flexibility, fewer legal impediments Can be converted to a corporation Flexibility in management member-managed
    47. 47. LLC Advantages Flow through taxation No limitation on ownership Can create multiple classes of shares and SERIES Great if raising capital No Hall Tax (if owners are TN residents) More flexibility, fewer legal impediments Can be converted to a corporation Flexibility in management member-managed manager-managed
    48. 48. LLC Advantages Flow through taxation No limitation on ownership Can create multiple classes of shares and SERIES Great if raising capital No Hall Tax (if owners are TN residents) More flexibility, fewer legal impediments Can be converted to a corporation Flexibility in management member-managed manager-managed director managed
    49. 49. LLC
    50. 50. LLC Disadvantages
    51. 51. LLC Disadvantages Law is not developed:
    52. 52. LLC Disadvantages Law is not developed: not much precedence for companies going public
    53. 53. LLC Disadvantages Law is not developed: not much precedence for companies going public more room for litigation
    54. 54. LLC Disadvantages Law is not developed: not much precedence for companies going public more room for litigation Filing fee / annual fee higher ($300 / $300 per year minimum)
    55. 55. LLC Disadvantages Law is not developed: not much precedence for companies going public more room for litigation Filing fee / annual fee higher ($300 / $300 per year minimum) Some companies prefer to acquire shares instead of assets in a merger.
    56. 56. Who would want a LLC? Management flexibility Angel or Venture funds Zero corporate formalities Prefers asset transactions Multiple business interests Easy transference of membership interest
    57. 57. Illustration of entity level taxation vs. flow-through taxation C-corporation LLC/s-corp Net Income $100 $100 Corporate Tax Rate 35% 0% Entity Tax Liability on Income -$35 $0 Distribution to Owner $65 $100 Tax Rate Imposed on Distribution 15% (Dividend Rat) 0% Owner Tax Rate on Income 0% 35% Tax Liability -$9.75 -$35 After-Tax Amount $55.25 $65.00
    58. 58. Stuff you need
    59. 59. For Office Use Only ARTICLES OF ORGANIZATION (LIMITED LIABILITY COMPANY) (For use on or after 7/1/2006) Corporate Filings 312 Eighth Avenue North 6th Floor, William R. Snodgrass Tower Nashville, TN 37243 The Articles of Organization presented herein are adopted in accordance with the provisions of the Tennessee Revised Limited Liability Company Act. 1. The name of the Limited Liability Company is: (NOTE: Pursuant to the provisions of TCA §48-249-106, each limited Liability Company name must contain the words “Limited Liability Company” or the abbreviation “LLC” or “L.L.C.”) 2. The name and complete address of the Limited Liability Company’s initial registered agent and office located in the state of Tennessee is: (Name) (Street address) (City) (State/Zip Code) (County) 3. The Limited Liability Company will be: (NOTE: PLEASE MARK APPLICABLE BOX) Member Managed Manager Managed Director Managed 4. Number of Members at the date of filing, if more than six (6): . 5. If the document is not to be effective upon filing by the Secretary of State, the delayed effective date and time is: (Not to exceed 90 days) Date: , Time: 6. The complete address of the Limited Liability Company’s principal executive office is: (Street Address) (City) (State/County/Zip Code) 7. Period of Duration if not perpetual: 8. Other Provisions: 9. THIS COMPANY IS A NONPROFIT LIMITED LIABILITY COMPANY (Check if applicable) Signature Date Signature Signer’s Capacity (if other than individual capacity) Name (printed or typed) SS-4270 (Rev. 05/06) Filing Fee: $50 per member (minimum fee = $300, maximum fee = $3,000 RDA 2458
    60. 60. Operating Agreement Initial Board Resolution Subscription Agreements
    61. 61. No Commingling!
    62. 62. Maintain discipline with accounting
    63. 63. Maintain discipline with accounting
    64. 64. Maintain discipline with accounting
    65. 65. Maintain discipline with accounting
    66. 66. Maintain discipline with accounting
    67. 67. Illustration of tax savings by running expenses through your business Personal / W2 Entity / 1099 Net Income $50,000 $50,000 Internet connection 0 $500 Car payment 0 $5,000 Office Supplies / Tech 0 $3,000 Meals / Entertainment 0 $3,000 * .5 = $1,500 Travel 0 $2,000 Home office 0 $500 Marketing 0 $2,500 Taxable Income $50,000 $35,000 Tax (35%) $17,500 $12,250 Difference $5,250
    68. 68. Illustration of tax savings by running expenses through your business Personal / W2 Entity / 1099 Net Income $50,000 $50,000 Internet connection 0 $500 Car payment 0 $5,000 Office Supplies / Tech 0 $3,000 Meals / Entertainment 0 $3,000 * .5 = $1,500 Travel 0 $2,000 Home office 0 $500 Marketing 0 $2,500 Taxable Income $50,000 $35,000 Tax (35%) $17,500 $12,250 Difference $5,250
    69. 69. BUT WAIT, THERE’S MORE!!
    70. 70. Attendees are walking away with all of the pertinent documents to get started: a value of over $2,000. Corporate LLC Forms Forms Action of Incorporator Consent of Board of Operating Agreement Directors Initial Board Consent of Shareholders Resolution Bylaws Subscription Sub-S election (if you Agreements want “S” corporation)
    71. 71. about Me I’m an attorney and entrepreneur. I own and operate The Law Office of Kevin Thompson and specialize in providing legal services for startup direct sales organizations. I’m write a lot and I’ve published multiple ebooks accruing over 65,000 reads and 2,500 downloads. Contact me via: www.about.me/kevinthompson.

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