The webinar discusses the key factors to consider when choosing a business entity, including various types of entities like C corporations, S corporations, LLCs, partnerships, and sole proprietorships. It covers differences in liability, ownership restrictions, taxation of income, employment taxes, deductibility of fringe benefits, and implications of distributions and sales. The webinar analyzes these considerations and pros and cons for each entity type to help business owners determine the most suitable structure. It also reviews procedures for changing entity forms.

1. “Winning Business Strategies”
Webinar Series
What’s the right business
entity choice?
Presented by:
Michael E. Stover, CPA/ABV & Michael P. Moloney, JD, CFP®

2. Entity Choices
 C Corporation
 S Corporation
 LLC
 Partnership
 Sole Proprietorship

3. State Law vs. Federal Law
 State Law
– Determined by filing with Secretary of State
– Supplies rules of corporate governance
– Determines creditor’s rights
 Federal Income Tax Law
– Selected on SS4 form by checking the box
– Determines income tax rules

4. Liability Issues
 What creditor protection does each
form offer?
– From the bank
– From the landlord
– From creditors of the entity

5. Restrictions on Ownership
Corporation Partnership / LLC S Corporation
No restrictions No restrictions – Must be limited to
100 shareholders
– Can only be certain
kinds of trusts
– Cannot be an entity
with multiple
owners

6. Operational Tax Issues
 Income tax
 Employment tax
 Deductibility of Fringe benefits

7. Income Tax Issues
Corporation Partnership / LLC S Corporation
Corporation is taxed on Partners taxed on their Shareholders taxed on
its income using its own share of income, their share of income,
set of graduated tax regardless of regardless of
brackets. distributions. Losses distributions. Losses
may be deducted by may be deducted by
$ 0 - $ 50,000 = 15% partners to the extent of shareholders to extent
$ 50 - $ 75,000 = 25%
$ 75 - $100,000 = 34%
basis. Share of of basis.
$100 - $335,000 = 39% liabilities increase basis
> $335,000 = 34% of GPs.
Allocation is determined Allocation is determined
by Agreement if by interest owned on a
“substantial economic daily basis.
effect”.

8. Employment Tax Issues
Corporation Partnership / LLC S Corporation
Officers are paid a Partners are not Officers are paid a
salary which is subject employees, amounts salary which is subject
to employment taxes. paid are considered a to employment taxes.
distribution of
Dividends of retained earnings, unless they Dividends of retained
earnings are subject to qualify as a earnings are NOT
income tax at guaranteed payment. subject to income tax
shareholder level. Self-employment tax at shareholder level.
(double taxation) on general partner’s
share of income.
No additional tax on
distributions.

9. Fringe Benefits
Corporation Partnership / LLC S Corporation
Available to all Partners are required Shareholders owning
shareholders who are to include value of 2% or more are
employees. Cannot fringe benefits in gross required to include
be discriminatory in income. value of fringe benefits
favor of highly in gross income.
compensated
employees. (For example, not (For example, not
allowed to participate allowed to participate
in Sec. 125 plans) in Sec. 125 plans)

10. Estate Planning Issues
Corporation Partnership / LLC S Corporation
– Freely transferable – Freely transferable – Restrictions on
transfers
– Dividends to – Income
owners distributions to – Income
owners distributions to
owners
– Income tax basis
step-up on internal – Only one class of
assets stock

11. Distributions of Property
Corporation Partnership / LLC S Corporation
Corporation required No gain or loss to the Same as corporation.
to recognize gain as if partnership or partner Gain is allocated to
it sold the property. unless Sec. 751 shareholders.
applies. Partner Distributions must be
Value is the taxed to assumes partnership’s proportionate to all
shareholder as a basis in property. shareholders.
dividend.
(double taxation)

12. Sale of Stock or Assets
Corporation Partnership / LLC S Corporation
Capital gain treatment Capital gain treatment Capital gain treatment
on sale of stock. 50% unless Sec. 751 on sale of stock.
of gain can be applies. Small business stock
excluded from income. exclusion/deduction
$50,000 ($100,000 if does not apply.
filing joint) of loss can
be deducted against Gain on sale of assets
ordinary income. allocated to
shareholders, which
Sale of assets taxed to increases basis, which
corporation, then reduces gain upon
liquidating dividend liquidation.
taxed to shareholders.

13. Changing From One Form to Another
 C Corporation to S Corporation
 S Corporation to LLC
 LLC to S or C Corporation

14. Review Pros and Cons
 C Corporation
 S Corporation
 LLC
 Partnership
 Sole Proprietorship

15. What’s the right business entity choice?
Presented by:
Michael P. Moloney, JD, CFP® Michael E. Stover, CPA/ABV
Sebaly Shillito + Dyer Brady Ware
and
(937) 222-2055 (937) 913-2507
mmoloney@ssdlaw.com mstover@bradyware.com
IRS Circular 230 disclosure: To ensure compliance with requirements imposed
by the IRS, we inform you that any U.S. federal tax advice contained in this
document is not intended or written to be used, and cannot be used, for the
purpose of (i) avoiding penalties under the Internal Revenue Code or (ii)
promoting, marketing or recommending to another party any transaction or
matter that is contained in this document.