10 steps presentation version pdf4

Legal-Ease and
Peace of Mind
(10 Steps to Formation
Nirvana)
By: Xonna Clark, Esq.
Confidential Information of Xonna
Clark- Do Not Distribute1

AGENDA
¤ First of a series
¤ Roadmap of first 10 steps
¤ Ease and Peace of Mind
¤ Options: DIY or Seek Support
2
Confidential Information of Xonna Clark- Do Not Distribute

NAME AVAILABILITY
›  DOMAIN NAME
›  FEDERAL LEVEL- TRADEMARK OFFICE
›  STATE LEVEL
›  LOCAL LEVEL

Step 1: The Big Step- Your
Business Entity
ENSURE YOUR NAME IS AVAILABLE--
BEFORE YOU DO ANYTHING ELSE
3

Which Entity Is Best For Me?
3 Way Decision
Ease of operation
Tax Issues

Liability
Protect personal assets, lower tax bill,
and grow your business!
•  Complexity
•  People Involved
•  Capital
•  Control
•  Cost
•  Skills
•  Survivorship
4

What Are My Choices?
›  Sole Proprietorships
›  Partnerships
›  General
›  Limited
›  Limited Liability
›  Corporations
›  Limited Liability Company
›  Limited Liability Partnership
The Decision Is Different For Everyone
5

Best Entities for Most
Small Businesses
¤  Sole Proprietorship
¤  LLC
¤  Subchapter S Corporation
6

PROS
›  Least complex/most flexible
›  Lowest cost
›  Complete control
›  No extra tax returns
CONS
›  Unlimited liability (home and family assets at risk)
›  Extra taxes- 15.3% self employment tax
›  No deduction against self employment tax for
fringe benefits (e.g health insurance/ pension)
›  Only one person or a married couple
›  Financing is from you & borrowing
›  Business dies with you or sale of all assets
Sole Proprietorship
7
Confidential
Information of
Xonna Clark-
Do Not
Distribute

Limited Liability Company- LLC
PROS
¤  Limited liability can be selected
¤  Unlimited number of people involved
¤  Capital from members & borrowing
¤  Control/Centralized management
¤  Can add skilled personnel
¤  Members divide profits or losses
¤  Must have a dissolution date
¤  Free transferability of interest
A hybrid creation; varies by state
8

CONS
¤  More costly than sole proprietorship
¤  Must choose tax election
¤  State filing to set up Articles of Organization
¤  Should have an operating agreement
¤  Must treat as a separate entity or can lose liability
protection
¤  Self-employment tax on entire earnings
9

Sub Chapter S Corporation
PROS
¤  Legal life of its own
¤  Limited liability for shareholders
¤  Capital - sale of stock & borrowing
¤  Control with elected officers & board
¤  Perpetual life
¤  Can deduct for fringe benefits
¤  Can deduct losses against personal income tax
¤  No double taxation of a C Corporation
¤  Advantage over LLC- no self-employment taxes on
profits that are not paid out as salaries.
10

CONS
¤  Highly regulated
¤  Requires formal corporate records
¤  Annual corporate filings
¤  More expensive
¤  Veil can be pierced
¤  Fewer fringe benefit deductions
¤  Must elect to be a Sub S with IRS using Form
2553 – Must be filed before the end of the tax
year of incorporation
More Regulated; Risk Of Loss Of
Protection
11

What About a Partnership?
Two types: General and Limited
General Partnership
2 or more individuals join together to carry out the
business.
PROS:
¤  Can raise additional monies
¤  Can add skilled partners
¤  Partners share control
¤  Partners divide profits or losses
¤  Taxed on individual tax return
12

CONS
¤ Partner 100% liable for the other’s debts/acts
¤ Like sole proprietorship, must pay additional self
employment tax
¤ Limitations on fringe benefit deductions
¤ “Dissolves" upon death of partner
¤ Requires more bookkeeping
¤ Partners pay taxes on entire share of profits, even
reinvested funds in the business
¤ Definitely need a Partnership Agreement
Beware- Partnerships can be complex!
13

Limited Partnership
2 or more individuals join together to carry out the
business but some partners are more protected
PROS
›  Unlimited number of people involved
›  Can raise additional monies
›  Can add skilled partners
›  Limited partner’s liability limited to amount of their
investment
›  Partners divide profits or losses
›  Only general partner has control
›  Taxed on individual tax return
Good For Financing
14

CONS
¤  General partner 100% liable for debts and acts of all
¤  Limited partners can lose protection
¤  Need a Partnership Agreement
¤  Must do Certificate Registration with the State
¤  Like sole proprietorship, must pay additional self
employment tax
¤  Limitations on fringe benefit deductions
¤  Requires more bookkeeping
¤  “Dissolves" upon death of general partner
BUT—Higher Risk for General
Partner
15

Limited Liability Partnership-LLP
PROS
¤  Confers limited liability to all partners; one partner is not
responsible for another’s wrongdoing.
¤  Allows all partners to be involved in the management
¤  All other benefits of a partnership apply
CONS
¤  Additional registration
¤  Varies by state
16

Critical Document—
The Partnership Agreement
¤  What is the name and nature of the business?
¤  Are there any limitations on partnership authority?
¤  How much capital is each going to contribute?
¤  What % of capital is money vs time-skill?
¤  What are the duties and responsibilities of each
partner (are there limits)?
¤  How are disputes handled?
17

And More…
¤  What happens if one partner decides to quit or is
terminated?
¤  Are there any limitations on draw?
¤  How is profit or loss to be split?
¤  Who will do accounting and what will be
shared with individual partners?
¤  Is there an election to continue the business?
¤  Use of name
18

And More!
¤  How are partners’ interests to be valued on death or
dissolution?
¤  What is the duration of the partnership?
¤  Will there be an arbitration process?
¤  See a good attorney – each partner should have a
different attorney
¤  Buy/Sell agreement funded by life insurance
So, Is A Partnership For You??
19

Finally, a C-Corporation
Pros
¤  Legal life of its own
¤  Limited liability for shareholders
¤  Capital - sale of stock & borrowing
¤  Control with elected officers & board
¤  Perpetual life
¤  Can deduct for fringe benefits
The Most Liability Protection
20

CONS

•  Highly regulated
•  Requires formal corporate records
•  Annual corporate filings
•  Most expensive
•  Double tax
•  Veil can be pierced
The Most Regulated
21

Rule of More
The more you have of any of the following…
¤ Business owners
¤ Business complexity
¤ Sites of operation
¤ Capital investment
¤ Other businesses
¤ Need for multiple layers
of protection
¤  Cash for
investment
¤  Personal wealth
¤  Business related
risk
¤  Employees
¤  Tax complexities
The More Protective Structure You
Need and the Less You Should DIY
22

Online Resources
for determining a business structure
SBA:
http://www.sba.gov/content/business-structure-and-tax-
implications
SCORE:
http://www.score.org/events/workshops/determining-your-
business-legal-structure
IRS: http://www.irs.gov/Businesses/
STATE:
MD SDAT: http://www.dat.state.md.us/MD Small Business
Development Center: www.mdsbdc.umd.edu
DC Dept. of Corporations: http://dcra.dc.gov
23

NOW THAT YOU ARE FORMED,
WHAT DO YOU DO?
STEP 2: Register your “trade” name
¤  SBA:
http://www.sba.gov/content/5-steps-registering-your-
business
¤  DC:
http://dcra.dc.gov/publication/trade-name-registration-
form
¤  MD: http://www.dat.state.md.us/sdatweb/
sdatforms.html
24

STEP 3: Obtain Federal Tax
Identification (“EIN”) Number
¤ Assigned to sole proprietors, corporations,
partnerships etc. for tax filing and reporting purposes
¤ Source:
¤  IRS.gov for filing- Form 2553
¤ SDAT
¤ DC Dept of Taxation
Often Needed to Establish Business
Bank Account
25

STEP 4: Check County and
Local Zoning Requirements
¤ Check that your business activity is permitted
¤ Check for restrictions on home-based businesses
¤ DC requires a Home Occupation Permit
¤ Check MD county zoning regulations
¤ Check for regulations on signs and parking
¤ Source: County/DC planning and zoning
department
26

STEP 5: Check For State and
Local License and Permits
¤ State of MD: business license required for most
businesses
¤ Source:
¤ -Clerk of the Circuit Court in county where
business is located
¤ -Dept of Business and Economic development,
Dept of Labor, Licensing and Regulation
¤ -Division of Occupational and Professional
Licensing
¤ DC: Basic Business License Program
27

STEP 6: Check for Sales Tax
¤  retail sale of property and taxable services
¤  sometimes on food sales
¤  Source: MD COMAR 03.06.01.05
28

STEP 7: Set Up Tax and
Bookkeeping Mechanisms
¤  Ensure you understand possible deductions and keep
your receipts separated accordingly.
¤  Ensure you are properly using and accounting for your
home-based business
¤  Most accountants recommend Quickbooks from the
beginning
29

STEP 8: Get Insurance-
Assess the Risk
¤  Professional liability-
individual
¤  Professional liability-
Business & Personal
Errors and Omissions
¤  Business Interruption
¤  Personal disability
¤  Employer Practices
Liability
¤  Health
¤  Fire
¤  Burglary
¤  Flood
¤  Property
¤  Theft
¤  Automobile liability
¤  Business Loan
¤  Buy-Sell Agreements
¤  Rider for House and
personally owned
vehicle
Types of Insurance
30

Advice
¤  Shop around for rates and coverage
¤  Independent vs House
¤  Coverage under personal policy and commercial policy
may be different
¤  Contact: reputable agent
¤  Do you have enough insurance to get your business back
in operation?
¤  Review your policy to make sure you understand what is
not covered.
Many MUIH Nutritionist Use HPSCO
31

STEP 9 – Get Your Agreements
in Place
¤  Internal Organizational Documents
¤  Informed Consent and HIPAA Notice
¤  Various Operational Documents
Will Offer A Separate Session On
Agreements
32

STEP 10- Hire Your Team
¤ Accountant
¤ Insurance Agent
¤ Lawyer
Even DIYers Need a Business Team
33

Action Plan Checklist
1.  Form the right legal entity structure for you
2.  Get your trade name registered
3.  Get your Tax ID #
4.  Check Zoning Restrictions
5.  Get Your Permits/Licenses
6.  Determine Sales Tax Requirements
7.  Establish Your Tax/ Accounting Processes
8.  Get Insurance in Place
9.  Establish Proper Agreements
10. Hire Your Accountant, Insurer, Lawyer
34

Places To Go For Help
SBA: http://www.sba.gov/training
MD Small Business Development Center: http://
www.mdsbdc.umd.edu
MD Women’s Business Center:
http://www.mdwbc.org
DC Small Business Dev’t Ctr
https://www.dcsbdc.org
SCORE: http://www.score.org
35

Legal Care For Wellness
Care
¤ 25% Savings for MUIH Students/Graduates
¤ Flat Rates/Packages Available
¤ Future Webinars:
¤ Legal Agreements You Need
¤ Trademarks/Copyrights
¤ Making Product/Service Claims
¤ Referrals Welcomed for Workshops or Personal
Retainer
Contact Xonna Clark, Esq. 704-516-6973
xonnaclark@gmail.com
36

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