7 13 11legal structure presentation

A. Page Beetem,
Asst. Prof. Legal Studies,
University of Cincinnati, Clermont
beetemap@ucmail.uc.edu

Christopher Gulinello
Professor of Law
Chase College of Law,
Northern Kentucky University
GULINELLOC@nku.edu

BGVLegal Structuring- Information contained in this presentation is not meant to be legal advice.
Please consult with an attorney for legal advice specific to your business.

Basic Business Structuring

• Sole Proprietorship
• Partnership
• Limited Liability Company
• Corporations
• S Corporation


Structures So Far…
S. P.
Global to Local
Healthy Kids Fast!
Language Solutions
LLC

S. P.
Premium Sealcoat
S. P.
S. P. Chocolats Latour
VenueAgent
Daelia's Food
Company, Ltd.

Emerald
S. P. Construction S. P.
Management, Tiburon Energy &
CultureSpeak Construction
Subsidiary? Inc.
Consulting
Dean Family Farm
Rosie's Turkey
Corner

How do I choose?

1.Taxes
2.Liability
3.Control

BGVLegal Structuring- Information contained in this presentation is not meant to be legal
advice. Please consult with an attorney for legal advice specific to your business.

A Comparison of the
Basic Types of Businesses
Type of Business Taxation Liability Control

Sole Single Unlimited Total Autonomy
Proprietorship
Partnership Single Unlimited Shared
Governance
Corporation Double Limited to Board
capital Governance
contribution
Limited Liability Single Limited to Member vs
Company capital Manager
contribution managed
S Corporation Election Limited to Board
capital Governance
contribution


Sole Proprietorship- Advantages

• The simplest form to start and maintain;

• Business profits are taxed as ordinary
personal income;

• Owner retains complete control over the
business operation.


Sole Proprietorship Disadvantages

• The major disadvantage of the sole
proprietorship is that all the owner's
personal assets, regardless of whether
they are related to the operation of the
business, are available to satisfy
business-incurred debts.

• The business dies with the owner and
the owner is often limited in funding to
his or her own resources.

Partnership- Advantages

• a number of people can form a
partnership and that the partnership

• Shared Management

• assets are only taxed once as personal
income to the partners.


Partnership- Disadvantages
• every partner assumes liability for
the actions of every other partner

• Shared Management

• personal assets can be taken to pay
for business liabilities.


Corporations- Advantages
• Investors have the advantage of being
owners without having to assume any
liability beyond the cost of their individual
shares,

• Corporate form has perpetual existence,
and

• Shares are transferable.

Corporations- Disadvantages
“double taxation”
• The corporation's profits are taxed at the
corporate level before dividends are distributed
to shareholders. The shareholders then are
taxed again on the dividends they receive.

• Also, limited liability may be illusory at least as
to business debts as banks and other creditors
often require shareholders in small
corporations to provide personal guarantees to
secure loans.

To qualify for S corporation status, the corporation
must meet the following IRS requirements:

• Be a domestic corporation
• Have only allowable shareholders
– including individuals, certain trust, and estates and
– may not include partnerships, corporations or non-
resident alien shareholders
• Have no more than 100 shareholders
• Have one class of stock
• Not be an ineligible corporation i.e. certain
financial institutions, insurance companies, and
domestic international sales corporations.

S Corporation- Advantages
• The independent life of the corporation makes possible its continuation,
and the relatively undisturbed continued operation of the business
regardless of incapacity or death of one or more stockholders.
• Fractional ownership shares are easily accommodated in the initial
offering of stock.
• The purchase, sale, and gifting of stock make it possible to have changes
in ownership without disturbing the corporation's ability to conduct
business.
• With only a few exceptions, under the Subchapter S election for taxation
as a partnership the S corporation pays no income taxes and corporation
income or loss is passed through direct to the stockholders.
• Limited Liability
• Earnings representing "return on investment" (interest, rental payments,
etc.) are not subject to self-employment tax as long as stockholder-
employees receive adequate compensation for labor and management
of the business. BGVLegal Structuring- Information contained in this presentation is not meant to be legal advice.

S Corporation- Disadvantages
• Lenders may require personal guarantees from corporate officers as a
condition of supplying credit, thus negating the limitation of liability.

• Conflicts or disagreements among the stockholders may immobilize
decision making.

• Through the processes of gifting and inheritance, stock ownership can
become divided among many persons who are not active in the business
and they may become a voting block that does not support needs and
decisions believed desirable by managing stockholders.

• If appreciated assets are owned by the corporation and the corporation
is dissolved, significant income taxes on the appreciation amount will be
generated.

Limited Liability Company- Advantages

 limited liability that is afforded by the
corporate form

 single taxation that occurs in a partnership.

 Member managed OR Manager Managed


Limited Liability Company-
Disadvantages

• The minor disadvantage is that because the statutes authorizing these new forms are of very recent origin (generally the early
1990s) there is very little case law as yet to guide us in understanding how the courts will view these new business forms


What can be done to prevent a creditor from
"piercing the corporate/LLC veil“?
• Make sure your corporation or LLC is properly set up. If you are setting up
an entity without the help of an attorney, you may not be taking all the
necessary steps to make sure that the entity is properly formed.
• Observe formalities once the entity is formed. Corporations should hold
annual meetings of shareholders. There should be meetings of the Board
of Directors.
• An LLC should have an Operating Agreement, and the terms of that
Operating Agreement should be followed.
• Your entity should have a separate bank account and be treated as a
separate entity.
• Your corporation or LLC should have usual and customary insurance for
whatever business it is conducting.
• Follow good business practices. Forming an entity will not shield an
individual owner from fraud or illegal acts.
• Avoid undercapitlization.
BGVLegal Structuring- Information contained in this presentation is not meant
to be legal advice. Please consult with an attorney for legal advice specific to
your business.

•Tiburon Energy &
Construction Who Am I?
•Healthy Kids Fast!
•Global to Local
Language Solutions ABC, Inc.
LLC By: ________________
•VenueAgent
•Premium Sealcoat Page Beetem, President
•Daelia's Food OR
Company, Ltd.
•CultureSpeak
Consulting ABC, LLC
•Dean Family Farm
Rosie's Turkey Corner
By: ________________
•Emerald Construction Page Beetem, Member
Management, Inc.
•Chocolats Latour

LLC Records requirements- ORC 1705.28
• 1705.28 Principal office shall keep certain records.
• (A) The company shall keep at its principal office all of the following:
• (1) A current list of the full names, in alphabetical order, and last known business or residence
address of each member;
• (2) A copy of the articles of organization, all amendments to the articles, and executed copies of
any powers of attorney pursuant to which the articles or the amendments have been executed;
• (3) A copy of any written operating agreement, all amendments to that operating agreement, and
executed copies of any written powers of attorney pursuant to which the operating agreement and
the amendments have been executed;
• (4) Copies of any federal, state, and local income tax returns and reports of the company for the
three most recent years;
• (5) Copies of any financial statements of the company for the three most recent years;
• (6) Unless contained in a written operating agreement, a writing setting forth all of the following:
• (a) The amount of cash, and a description and statement of the agreed value of any other property
or services, that each member has contributed and has agreed to contribute in the future;
• (b) Each time at which and each event on the occurrence of which any additional contribution
agreed to be made by each member is to be made;
• (c) Any right of the company to make to a member, or of a member to receive, any distribution
that includes a return of all or any part of his contribution;
• (d) Each event upon the occurrence of which the company is to be dissolved and its affairs wound
up.

A Comparison of the
Basic Types of Businesses
Type of Business Taxation Liability Control

Sole Single Unlimited Total Autonomy
Proprietorship
Partnership Single Unlimited Shared
Governance
Corporation Double Limited to Board
capital Governance
contribution
Limited Liability Single Limited to Member vs
Company capital Manager
contribution managed
S Corporation Election Limited to Board
capital Governance
contribution


How do I start?

http://tinyurl.com/Clermont-Business-Plan

Ohio Secretary of State-
http://www.sos.state.oh.us/sos/upload/business/filingformsfeeschedu
le.aspx?page=251

Citizen Media Law Project-
http://www.citmedialaw.org/legal-guide/forming-business-and-
getting-online


7 13 11legal structure presentation

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