BUSINESS Formations & Consulting

1) I'm thinking of starting a business. What is the best entity to form?

Answer:

This very important question does not have one answer. The type business,

risks to principals, ownership, product or service, financing requirements,

debt, and a myriad of other factors go into answering the question. Each

Business entity (sole proprietor, partnership, limited liability company

or corporation) has its advantages and disadvantages.

2) Ok, So what are the main factors?

Answer:

The two overall factors that must be considered are liability and taxes.

If set up and run properly, limited liability partnerships, limited liability

company's and corporations, will shield the principals of the company

from direct liability. Other factors to consider include the cost of

forming the entity of choice, the formalities that must be followed to

keep the entity operating properly, the complexity of running each type

of entity. Many other factors must be considered.

3) What is a Limited Liability Company?

Answer:

A Limited Liability Company (LLC) is a fairly new type of entity that is

inexpensive to form, easy to run, and allows pass through taxation (money

earned in the LLC is taxed only once as it passes to the principals of

the LLC).

4) What is the Downside to an LLC?

Answer:

LLC's pay franchise tax to the state of Texas. Franchise tax is 4.5% of the

LLC's taxable income. In addition, the principals of the LLC are subject to

Self employment taxes.

5) If I just go into business with my friends, what type of entity do I have?

Answer:

The default entity is a partnership. In a partnership each partner is liable

for the actions of the other partners, including all debts and tax

obligations of the partnership.