The first seminar of a four-part series on growing a business and preparing it for sale led by the co-chair of Kegler Brown's M+A practice, Eric Duffee. Eric partnered with Jeff Tubaugh and Maggie Gilmore of BDO for this presentation, which focused on the fundamentals of entity selection. It detailed different entity types and the related impacts from tax reform affecting them. It also discussed concerns related to outside investors, partnerships, various structural forms and the tax impact of each.
CTKnowledgeShare: CT Corporation is dedicated to educating our customers on the most current and essential topics for corporate legal and compliance professionals.
CTKnowledgeShare: CT Corporation is dedicated to educating our customers on the most current and essential topics for corporate legal and compliance professionals.
Introduction to Business Entities in Pakistanhamidjalal
The document provides a brief description of Legal Entities that could be incorporated in Pakistan to start a business and the merits and demirits of using each entity as a launch pad
Mercer Capital's Value Matters™ | Issue 2 2021 Mercer Capital
Mercer Capital's Value Matters™, published 4 times per year, addresses gift & estate tax, ESOP, buy-sell agreement, and transaction advisory topics of interest to estate planners and other professional advisors to business.
How to transform a family business: insights from the trenches Browne & Mohan
Working with many family businesses across industries, we realize they face a high rate of failure because of their inability to distinguish between family and business issues and build structures and process that protect value across generations. In this paper, we share governance process and systems that are a must for family businesses to preserve and sustain economic and social values across multiple generations.
C-Suite Snacks Webinar Series: Tax Structures to Reduce Cost and Improve Comp...Citrin Cooperman
Sign up for our weekly C-Suite Snacks webinars here: https://www.citrincooperman.com/infocus/c-suite-snacks
Our C-Suite Snacks webinar series provides the middle market with brief, strategic, and tactical business improvement information for 30 minutes every week. Join Citrin Cooperman live every Thursday at noon for snack-sized insights for business executives.
Running a business can be quite difficult, and the process of getting things up and running often overshadows other considerations, such as what type of business tax structure you should operate under. During this session, we covered how to structure your business for optimal tax benefits. Key takeaways included:
- Best tax structure for your business
- New insights on tax structure
- Tips to avoid tax traps based on the type of structure
There are many people creating new entities in order to protect their assets and liability. This small presentation of running an S-Corporation has been provided to offer some "Basic" understanding of certain requirements that are often overlooked when choosing the S-Corporation entity type.
S corporations are legally structured in a way that allow them to go untaxed. This is because income that is recognized by owners is taxed at the personal level and not via the business. Moreover, an S corporation is a pass-through or flow-through entity, which means income passes through to the shareholders. This newsletter details tax management information and methods used by and relevant to S corporations.
Introduction to Business Entities in Pakistanhamidjalal
The document provides a brief description of Legal Entities that could be incorporated in Pakistan to start a business and the merits and demirits of using each entity as a launch pad
Mercer Capital's Value Matters™ | Issue 2 2021 Mercer Capital
Mercer Capital's Value Matters™, published 4 times per year, addresses gift & estate tax, ESOP, buy-sell agreement, and transaction advisory topics of interest to estate planners and other professional advisors to business.
How to transform a family business: insights from the trenches Browne & Mohan
Working with many family businesses across industries, we realize they face a high rate of failure because of their inability to distinguish between family and business issues and build structures and process that protect value across generations. In this paper, we share governance process and systems that are a must for family businesses to preserve and sustain economic and social values across multiple generations.
C-Suite Snacks Webinar Series: Tax Structures to Reduce Cost and Improve Comp...Citrin Cooperman
Sign up for our weekly C-Suite Snacks webinars here: https://www.citrincooperman.com/infocus/c-suite-snacks
Our C-Suite Snacks webinar series provides the middle market with brief, strategic, and tactical business improvement information for 30 minutes every week. Join Citrin Cooperman live every Thursday at noon for snack-sized insights for business executives.
Running a business can be quite difficult, and the process of getting things up and running often overshadows other considerations, such as what type of business tax structure you should operate under. During this session, we covered how to structure your business for optimal tax benefits. Key takeaways included:
- Best tax structure for your business
- New insights on tax structure
- Tips to avoid tax traps based on the type of structure
There are many people creating new entities in order to protect their assets and liability. This small presentation of running an S-Corporation has been provided to offer some "Basic" understanding of certain requirements that are often overlooked when choosing the S-Corporation entity type.
S corporations are legally structured in a way that allow them to go untaxed. This is because income that is recognized by owners is taxed at the personal level and not via the business. Moreover, an S corporation is a pass-through or flow-through entity, which means income passes through to the shareholders. This newsletter details tax management information and methods used by and relevant to S corporations.
Everything your startup needs to know about accountingThe Idea Village
Don't get lost in the accounting world as you steer your venture to success! In this IDEAinstitute, attendees will be guided by the accounting startup compass: tools and insights of the trade necessary to reach your venture's destination.
Tax Cuts & Job Act Implications for Small Business Investments Companies Polsinelli PC
On December 22, 2017, the President signed into law a federal tax reform bill commonly known as the Tax Cuts & Jobs Act (the “Tax Act”). The Tax Act resulted in significant changes to the U.S. tax system on a number of fronts. This webinar will provide an overview the provisions of the Tax Act relevant to SBIC’s. We will also address the impact of the Tax Act upon the choice of entity decisions and a number of ancillary matters.
On Thursday, May 9, 2024, Kegler Brown presented its annual Managing Labor + Employee Seminar. The in-person and virtual seminar focused on timely information regarding labor and employee relations, and allowed attendees to earn CLE and SHRM credit hours.
On Wednesday, May 24, 2023 Kegler Brown presented its annual Managing Labor + Employee Seminar. The in-person and virtual seminar focused on timely information regarding labor and employee relations, and allowed attendees to earn CLE and SHRM credit hours.
On Thursday, February 23, Kegler Brown’s Construction lawyers, Don Gregory and Mike Madigan, presented an informative strategy session on ways to deal with central Ohio’s labor shortage and diversity and inclusion goals.
On April 24, Tony spoke to attendees of the Ohio SHRM State Council, HR Florida State Council and Aspect Marketing and Communications’ 2022 HR Cruise, presenting on how the post-pandemic workplace issues will affect the HR profession. Tony took attendees on a journey through workplaces of the past and future spanning a century starting with the Jetson’s future from the 1960s to the metaverse worlds in Ready Player One and Free Guy. Attendees learned about changes in local, state, and federal laws and regulations as well as court decisions, which attempt to stay ahead of such workplace changes. He also outlined ideas on how to address post-pandemic workplace issues to attract and retain a talented workforce. He finally touched on how to enable professionals to communicate the challenges facing the workplace to elected officials.
On Tuesday, March 8, 2022 Kegler Brown presented its annual Managing Labor + Employee Seminar. The virtual seminar focused on timely information regarding labor and employee relations, and allowed attendees to earn CLE and SHRM credit hours.
On Tuesday, March 9. 2021 Kegler Brown presented its annual Managing Labor + Employee Seminar. The virtual seminar focused on timely information regarding labor and employee relations, and allowed attendees to earn CLE and SHRM credit hours.
Danielle Crane kicked things off walking through the implications on the labor and employment sectors and how to prepare for anticipated changes with Joe Biden taking office and his inauguration. Our litigation attorney, Jane Gleaves covered how courts have had to adjust to the pandemic, how lawyers are taking litigation virtual and the noticed trends in litigation in light of the COVID-19 pandemic. Brendan Feheley, the chair of our Labor + Employment practice closed the seminar by providing an update on the employment law issues surrounding the global pandemic and America’s response to it.
As part of our 2020 LGBTQ SCOTUS Ruling webinar on July 7th, Brendan and Danielle hosted an in-depth discussion about the recent SCOTUS decision protecting the employment rights of LGBTQ employees under Title VII. The webinar primed employers for what we think will be coming, provided advice on the issues and questions to think about moving forward, and gave important employment considerations as we begin to receive guidance from the EEOC and federal courts.
Key Legal + Business Issues - Navigating Complexities in Doing Business in th...Kegler Brown Hill + Ritter
On Friday, May 1, Vinita Mehra and Cody Myers presented at Indo-American Chamber of Commerce’s Key Legal + Business Issues: Navigating Complexities in Doing Business in the U.S. webinar. The webinar covered a variety of topics including: drivers + trends of Indian outbound investments to the U.S., EDO incentive programming, negotiating contracts, protecting intellectual property, and impact of COVID-19 on Indo-U.S. businesses.
On December 3, Luis shared an update on Ohio’s medical marijuana law with the National Business Institute. He also discussed marijuana at a national level, detailing tax collections and the IRS sections related to doing business in marijuana. Using recent case studies, Luis illustrated how businesses can and cannot deduct or capitalize indirect expenses. Issues such as labor and licenses were also addressed. Luis also presented this topic at a December 17 event put on by the National Business Institute in Dayton, Ohio
On October 22, Luis spoke to the Mid-Ohio Regional Planning Commission about the history, status and future of legalization and the cannabis industry. Along with looking at the global medical marijuana industry and the tax revenues of adult use states, Luis also updated attendees on the structure of licensure in Ohio. Discussing the changing views and impacts on cities of marijuana, Luis broke down moratoriums, industry and zoning regulations, and new frontiers for decriminalization.
Luis spoke at a luncheon for the Paralegal Association of Central Ohio on April 23 and detailed the history, structure and impact of legalized marijuana. With a focus on Ohio’s Medical Marijuana Control Program, Luis reviewed several scientific, economic, cultural and legal aspects of legalization throughout the US. Along with taking questions from attendees, Luis also discussed what the future looks like for marijuana in Ohio.
Speaking to the Ohio Chamber of Commerce on April 5, Luis discussed several issues related to employment and medical marijuana. He detailed what the OMMCP does not do, such as how it does not require an employer to permit or accommodate an employee's use, or prohibit an employer from establishing and enforcing a drug testing policy, drug-free workplace policy, or zero-tolerance drug policy. He also highlighted other employment concerns, such as how the Worker’s Compensation Bureau will not pay for medical marijuana, and briefly reviewed the medical marijuana industry, looking at topics from sales figures to collegiate cannabis courses.
On February 27, Luis presented at a seminar put on by the Columbus Bar Association examining Ohio’s medical marijuana industry from a legal perspective. Including not only statutory and regulatory issues, this seminar also looked at commercial transactions and ownership/licensure transfers. It also discussed concerns typical of any industry, such as employment issues and capital raising, but that have unique challenges when it comes to medical marijuana. They also looked ahead to discuss the possible future of marijuana in Ohio, including questions of federal regulation and recreational use.
On January 29, Tony and Luis spoke to attendees of the Ohio Agribusiness Association’s 2020 Industry Conference, providing vital education on cannabis, cannabinoids, and the differences between hemp and marijuana. They also broke down what Ohio’s Medical Marijuana Act does not include in order to provide attendees with guidance on employer rights. Focusing on further employment concerns, Luis and Tony explained what the Ohio Bureau of Workers’ Compensation will and will not cover, and discussed testing, workplace policies, ongoing legalization trends and more.
Presented on 11/21 by Eric Duffee and Randy Gerber, Founder and Principal of Gerber LLC, as part of a four part series. This segment of the series covered equity-based employee incentives. It offered a clear description as to what they are, why companies use them, as well as some things to consider. Randy and Eric showcased a variety of examples along with a few alternatives in regard to compensation.
Kegler Brown's annual seminar on professional responsibility was presented on Friday, October 18, 2019 at the Columbus Bar Association (CBA). This year's seminar featured guest speaker, Kent Markus, who is a part of the Bar and General Counsel at the CBA, showcased an overview of the disciplinary system featuring an in-depth flowchart along with practical tips and best practices.
A panel discussion Q+A about topics ranging from advisory opinions, recent ethics developments, identifying issues, and the duty to report, were all covered by Kegler Brown litigators Jane Gleaves and Jason Beehler.
Moderator, Chris Weber discussed ways to navigate Ohio's Advocate-Witness rule, and his personal recommendations for best practices.
Grow + Sell Your Business Part Three: Practical Tips To Facilitate a TransactionKegler Brown Hill + Ritter
Presented by Eric Duffee and Michael Shaw, Copper Run Capital, on 10/17 as part of a Four Part Series. This segment of the series offered 8 clear steps to follow in pursuit of facilitating a successful transaction. It covered areas such as securing your assets, awareness of current market trends, a visual analysis of our current market update, and surrounding yourself with the right team.
Attorneys Jane Gleaves and Brendan Feheley presented various concerns related to the Gig Economy. They discussed topics such as the differences between an independent contractor or an employee, along with why this is important in our current economy. The seminar also covered the misclassification of employees as independent contractors and the effects of this. Finally, they offered a number of solutions for ways to avoid these issues.
Presented by Eric Duffee and Steve Barsotti on 9/19 as Part 2 of a Four Part Series. This seminar introduced the basics of Patent Requirements, Copyrights and confidential information (including Trade Secrets) and explained the strategies for and significance of protecting them. Discussions included necessary criteria for registration, how rights are established, and steps for filing and enforcement.
A "File Trademark" is a legal term referring to the registration of a unique symbol, logo, or name used to identify and distinguish products or services. This process provides legal protection, granting exclusive rights to the trademark owner, and helps prevent unauthorized use by competitors.
Visit Now: https://www.tumblr.com/trademark-quick/751620857551634432/ensure-legal-protection-file-your-trademark-with?source=share
Car Accident Injury Do I Have a Case....Knowyourright
Every year, thousands of Minnesotans are injured in car accidents. These injuries can be severe – even life-changing. Under Minnesota law, you can pursue compensation through a personal injury lawsuit.
WINDING UP of COMPANY, Modes of DissolutionKHURRAMWALI
Winding up, also known as liquidation, refers to the legal and financial process of dissolving a company. It involves ceasing operations, selling assets, settling debts, and ultimately removing the company from the official business registry.
Here's a breakdown of the key aspects of winding up:
Reasons for Winding Up:
Insolvency: This is the most common reason, where the company cannot pay its debts. Creditors may initiate a compulsory winding up to recover their dues.
Voluntary Closure: The owners may decide to close the company due to reasons like reaching business goals, facing losses, or merging with another company.
Deadlock: If shareholders or directors cannot agree on how to run the company, a court may order a winding up.
Types of Winding Up:
Voluntary Winding Up: This is initiated by the company's shareholders through a resolution passed by a majority vote. There are two main types:
Members' Voluntary Winding Up: The company is solvent (has enough assets to pay off its debts) and shareholders will receive any remaining assets after debts are settled.
Creditors' Voluntary Winding Up: The company is insolvent and creditors will be prioritized in receiving payment from the sale of assets.
Compulsory Winding Up: This is initiated by a court order, typically at the request of creditors, government agencies, or even by the company itself if it's insolvent.
Process of Winding Up:
Appointment of Liquidator: A qualified professional is appointed to oversee the winding-up process. They are responsible for selling assets, paying off debts, and distributing any remaining funds.
Cease Trading: The company stops its regular business operations.
Notification of Creditors: Creditors are informed about the winding up and invited to submit their claims.
Sale of Assets: The company's assets are sold to generate cash to pay off creditors.
Payment of Debts: Creditors are paid according to a set order of priority, with secured creditors receiving payment before unsecured creditors.
Distribution to Shareholders: If there are any remaining funds after all debts are settled, they are distributed to shareholders according to their ownership stake.
Dissolution: Once all claims are settled and distributions made, the company is officially dissolved and removed from the business register.
Impact of Winding Up:
Employees: Employees will likely lose their jobs during the winding-up process.
Creditors: Creditors may not recover their debts in full, especially if the company is insolvent.
Shareholders: Shareholders may not receive any payout if the company's debts exceed its assets.
Winding up is a complex legal and financial process that can have significant consequences for all parties involved. It's important to seek professional legal and financial advice when considering winding up a company.
Responsibilities of the office bearers while registering multi-state cooperat...Finlaw Consultancy Pvt Ltd
Introduction-
The process of register multi-state cooperative society in India is governed by the Multi-State Co-operative Societies Act, 2002. This process requires the office bearers to undertake several crucial responsibilities to ensure compliance with legal and regulatory frameworks. The key office bearers typically include the President, Secretary, and Treasurer, along with other elected members of the managing committee. Their responsibilities encompass administrative, legal, and financial duties essential for the successful registration and operation of the society.
Military Commissions details LtCol Thomas Jasper as Detailed Defense CounselThomas (Tom) Jasper
Military Commissions Trial Judiciary, Guantanamo Bay, Cuba. Notice of the Chief Defense Counsel's detailing of LtCol Thomas F. Jasper, Jr. USMC, as Detailed Defense Counsel for Abd Al Hadi Al-Iraqi on 6 August 2014 in the case of United States v. Hadi al Iraqi (10026)
3. 3
»LLCs
» Sole owner, SMLLC Single Member LLC
» Treated as a DRE “disregarded entity” for federal tax purposes
» Business’ taxable income included on sole owner’s individual return
» Top individual tax rate 37%
» Subject to self-employment taxes (FICA: SS and Medicare)
» Multiple members, default tax treatment is partnership
» No restrictions on owner type or number of owners
» Generally tax-free formation and liquidation
» Income allocated to owners and taxed at owner level
» Individual owners may be subject to self-employment taxes
» Active owners paid via Guaranteed Payment (versus Salary)
Legal Entities for Taxation Purposes
4. 4
»Corporations
» C Corporation
» Incorporate at the state level; generally incorporation is tax-free
» Business’ taxable income taxed at the corporate level at 21% federal rate
» Distributions to owners can be taxed as dividends at 15 or 20%
» No restrictions on owner type or number of owners
» Liquidations to owners generally a taxable event.
» S Corporation
» Restrictions on owner type or number of owners: no C Corporations, certain
trusts, or non-U.S. owners (limited to 100 shareholders)
» Income allocated to owners and taxed at owner level
» Individual owners involved in the business may take a salary
» Liquidations similar to C Corporations
Legal Entities for Taxation Purposes
5. 5
»C Corporations
» Advantages
» Business’ taxable income taxed at the corporate level at 21% federal rate
» No owner restrictions and ease of ownership transferability
» Federal, state and local income tax compliance at corporate entity
» Disadvantages
» Distributions to owners can be taxed as dividends at 15 or 20%
» Liquidations to owners generally a taxable event
» Sale of assets leaves owners of stock with non-recoverable tax basis in shell
company
C Corporation v. “Flow-Through”
6. 6
»Flow-Throughs
» Advantages
» Business’ taxable income may be offset with Small Business (199A) deduction,
lowering individual ETR from top rate of 37% to 29.6%
» Distributions to owners tax-free to the extent of tax basis
» One layer of taxable gain on sale of entity or assets
» Disadvantages
» On current business taxable income, higher ETR than C Corporation
» More complexity with income tax filings at federal, state, and local level
» Partnerships: Self-Employment taxes, complexity of ownership
» S Corporations: Liquidations to owners generally a taxable event, owner
restrictions which may impact ability to sell to 3rd party
C Corporation v. “Flow-Through”
7. 7
» Corporate tax rate reduced from 35% to 21%
» Significant tax changes to entities with international operations
» Individual top tax bracket reduced from 39.6% to 37%, with higher income
thresholds for higher brackets (through 1/1/2026)
» Flow-through entity owners ability to take Small Business 199A deduction,
effectively reducing the tax on business income from 37% to 29.6% (through
1/1/2026)
» Individual state tax itemized deduction capped at $10,000: this includes taxes
due on multi-state business taxable income paid at the owner-level
» Was there a mass change of business owners converting from flow-through
entity to C corporation to take advantage of lower tax rate?
» Short answer: No. Because of the double taxation of corporate profits (at
corporate level, and again at distribution), many small business owners opted to
keep their businesses structured as flow-through entities.
Tax Reform Impacts
9. 9
»Preferences?
» C Corporation
» Private Equity likes an operating C Corp or use of a “Blocker Corp” to protect their
investors from receiving flow-through income
» Ideal if stock can be sold later @ Capital Gain rates
» Partnerships
» Write-off of step-up in basis
» Preferential waterfalls for preferred investors
Outside Investors
10. 10
»Partnership Investments
» Preferred Units
» Accrue an annual return
» Accrual and capital contributions returned before common owner returned
» Gross Income trap (covered later)
» Write-off of Step-Up in Basis
» Purchase Price Allocation impact
» Offset to annual income
Outside Investors
11. 11
»Tax Impact of an Investment
» C Corp
» Issue of new shares is a non-tax event
» Stock basis of investors = cash investment
» Partnership
» Starting capital = cash investment
» Write-off of step-up in basis
» Issuing of new units requires additional tax calculations and special allocations
» What if we are an S Corp???
» Need to do some pre-transaction restructuring
Outside Investors
13. 1313
Shareholders
Hold Co Inc
(S Corp)
Step 1 - Shareholders form Hold Co Inc and contribute shares of Op Co Inc to Hold Co and make QSUB
election for Op Co Inc.
Shareholders
Op Co Inc.
(S Corp.)
Hold Co Inc
(S Corp)
Op Co S Corp Shares
Op Co Inc.
(QSUB)
After
Hold Co Inc Shares
Note 1: Situation #1 of Revenue Ruling 2008-18
14. 1414
Op Co Inc.
(QSUB)
Hold Co Inc.
(S Corp)
Shareholders
Step 2 – Op Co, Inc. converts to an LLC
Op Co, LLC
(LLC)
Conversion
Note 1: At least one day after Step #1.
15. 1515
Hold Co Inc.
(S Corporation)
Shareholders
Step 3 - Buyer buys X% of Op Co LLC from Hold Co Inc
Buyer
(LLC)
Cash
Alternative option – Buyer contributions cash to Op Co LLC in exchange for units
Op Co LLC
(LLC)
17. 17
» The Problem
» Complex partnership operating agreements that are more difficult for the common
investor to understand
» Owners not seeking counsel on the economics of the tax allocations = surprises
» Opportunities
» Increased cash for growth / possible partial redemption of existing owners
» Knowledge of industry
» Rapid growth
Private Equity / Family Office Investments
18. 18
» Things to know with tax allocations
» Typically new investors hold preferred units with a % annual yield that is paid or
accrued
» Annual tax allocations are NOT based on a % of units owned
» Targeted Capital Accounts & Liquidation Preferences
» Income allocated to get investors to their targeted capital amount based on a
deemed liquidation at book value (includes use of gross income items)
» Preferred Investors will get their yield and oftentimes their investment back
before the common unit holders start to receive their investment dollars back
» If company value drops over time, the investment of the common owners shifts to
preferred with the accrued yield
Private Equity / Family Office Investments
19. 19
» Things to know with tax allocations – An example:
» Owners A & B have 50/50 partnership
» Private equity firm receives membership units to give it a 1/3 ownership interest for
$1 million but holding preferred shares with 8% accrued annual yield
» Year 1 scenario – company has $0 net income
» Since PE firm accrued an 8% yield (not paid), their target becomes $1,080,000 so
they have to receive $80,000 of income
» Owners A & B would show $40,000 of loss each to net total allocations to $0
» Result = taxable income to PE Firm and need for tax distributions even though no
income was generated
Private Equity / Family Office Investments
20. 20
»Common Structure for Multi-Location Companies
Entity Structuring
OWNERS
STORE 2STORE 1 STORE 3
21. 21
»Better Structure for Multi-Location Companies
Entity Structuring
OWNERS
HOLDING
COMPANY LLC
STORE 1 STORE 2 STORE 3
22. 22
» Every state has its own unique taxes that have to be filed
» State income tax
» Gross receipts tax
» Privilege tax
» Payroll tax withholding (state, local, county, school district, etc.)
» Sales tax rates (including any add-ons for specific location)
» Personal property tax
» Food, beverage, liquor privilege – location-specific taxes on restaurants
» County taxes
» Business & licensing taxes (e.g., liquor license, facility license)
» Nexus issues for franchisors (market based vs cost of performance states)
M&A Due Diligence Trap - Tax Filing Issues
23. Contact Information
MAGGIE GILMORE, CPA
Tax Managing Director
mgilmore@bdo.com
614-573-7757
JEFF TUBAUGH, CPA
Tax Partner
jtubaugh@bdo.com
614-573-7785
28. Selecting the Right Entity:
FORMALITIES
Proper formation
documents
Separate bank
accounts/books/
records; flow of funds
Arm’s length contracts
with insiders
Clean cap table Know the rules!
29. Capitalization
Debt
Secured vs. unsecured
Senior vs. mezzanine vs.
subordinated
Straight debt vs.
convertible debt
Bank vs. other lenders
Equity
Common
Preferred: preferred
yield/coupons,
“liquidation” preferences,
anti-dilution, protective
provisions, participating
vs. non-participating
“Sweat Equity”
30. Bringing on
“PARTNERS”
Know the value your “partners”
bring to the company
Prepare for the potential “business
divorce” with a “business pre-nup”
Transfer restrictions and buy-sell
agreements
Valuation + funding
31.
32. QUESTION 1
Who owns this company?
No. Shareholder
Shares
Issued
Date
Issued
Date
Cancelled
1
Dr. Heinz
Doofenshmirtz
70 7/12/03
2
Roger
Doofenshmirtz
20 7/12/03 8/1/19
3 Perry the Platypus 10 7/12/03
SHARE LEDGER for DOOFENSHMIRTZ EVIL, INC
Authorized 100 Common Shares Without Par Value
33. QUESTION 2
Math!
Luke, Han, and Leia start a company called Rebel
Industries, LLC. Luke owns 50%, Han owns 37.5% and
Leia owns 12.5%. In order to finance growth and
operations, they agree to take on a preferred equity
investment from Jabba. Jabba provides Rebel with $1
million for 20% fully-participating preferred equity
with a 7% accruing preferred yield.
10 years later, they sell to Evil Galactic Empire,
Inc. for $10 million. Which of the four owners
gets most of the sales proceeds?
35. QUESTION 3
Tax Math!
Mr. Krabs owns Krusty Krab, Inc. Krusty Krab is a C-
corporation. He lives in a state with no state or local
income taxes. He receives two offers to purchase the
company as follows. Assuming the only assets are
goodwill/intangible assets with no tax basis, which
one will produce the most after-tax proceeds for Mr.
Krabs?
Offer 1: Stock purchase for $10 million
Offer 2: Asset purchase for $12 million
36. QUESTION 4
Can they do this?
Harry, Ron and Hermione form an S-Corp called
Hogwarts US, Inc. They’re looking to take on outside
investment from Snape Investment Funds, LLC. They
negotiate a deal to give Snape 10% preferred equity
and a 5% accruing preferred return on its initial
investment. Hogwarts US is generating significant
tax losses and will likely do so for the foreseeable
future. It’s important to everyone to continue
passing these losses through to the owners after
Snape’s investment.
37. Eric D. Duffee
Kegler Brown Hill + Ritter
eduffee@keglerbrown.com
keglerbrown.com/duffee
614-462-5433
Editor's Notes
Selecting the Right Entity: Alternatives
Corporation (Inc.)
C-corporation
S-corporation
Limited Liability Company (LLC)
Maybe, but probably not:
General partnership
Limited partnership
Limited liability partnership
Limited liability limited partnership
Panamanian bearer corporation
Selecting the Right Entity: Considerations
Protections
Taxes (including losses)
Maintenance/upkeep
Flexibility
Compensation alternatives
Investor expectations/preferred equity structures
Exit Readiness
Selecting the Right Entity: What State?
Ohio?
Delaware?
Somewhere else?
Formalities
Proper formation documents
Separate bank accounts/books/records; flow of funds
Arm’s length contracts with insiders
Clean cap table
Know the rules!
Capitalization
Debt
Secured vs. unsecured
Senior vs. mezzanine vs. subordinated
Straight debt vs. convertible debt
Bank vs. other lenders
Equity
Common
Preferred
Preferred yield/coupons
“Liquidation” preferences
Anti-dilution
Protective provisions
Participating vs. non-participating
“Sweat Equity”
Bringing on “Partners”
Know the value your “partners” bring to the company
Prepare for the potential “business divorce” with a “business pre-nup”
Transfer restrictions and buy-sell agreements
Valuation and funding
Pop Quiz!
Question 1: Who owns this company? [INSERT STOCK LEDGER]
Question 2: Math!
Luke, Han, and Leia start a company called Rebel Industries, LLC. Luke owns 50%, Han owns 37.5% and Leia owns 12.5%. In order to finance growth and operations, they agree to take on a preferred equity investment from Jabba. Jabba provides Rebel with $1 million for 20% fully-participating preferred equity with a 7% accruing preferred yield.
10 years later, they sell to Evil Galactic Empire, Inc. for $10 million. Which of the four owners gets most of the sales proceeds?
Question 3: Tax math!
Mr. Krabs owns Krusty Krab, Inc. Krusty Krab is a C-corporation. He lives in a state with no state or local income taxes. He receives two offers to purchase the company as follows. Assuming the only assets are goodwill/intangible assets with no tax basis, which one will produce the most after-tax proceeds for Mr. Krabs?
Offer 1: Stock purchase for $10 million
Offer 2: Asset purchase for $12 million
Question 4: Can they do this?
Harry, Ron and Hermione form an S-Corp called Hogwarts US, Inc. They’re looking to take on outside investment from Snape Investment Funds, LLC. They negotiate a deal to give Snape 10% preferred equity and a 5% accruing preferred return on its initial investment. Hogwarts US is generating significant tax losses and will likely do so for the foreseeable future. It’s important to everyone to continue passing these losses through to the owners after Snape’s investment.