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 Distribute 1

AGENDA

¤ First of a series

¤ Roadmap of first 10 steps

¤ Ease and Peace of Mind ¤ Options: DIY or Seek Support

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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

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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

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What Are My Choices? �  Sole Proprietorships �  Partnerships

�  General �  Limited

�  Limited Liability �  Corporations �  Limited Liability Company �  Limited Liability Partnership

The Decision Is Different For Everyone

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Best Entities for Most Small Businesses

¤  Sole Proprietorship ¤  LLC ¤  Subchapter S Corporation

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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

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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

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Sub Chapter S Corporation PROS ¤  Legal life of its own ¤  Limited liability for shareholders ¤  Capital - sale of stock & borrowing ¤  Control with elected officers & board ¤  Can add skilled personnel ¤  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.

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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

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What About a Partnership?

Two types: General and Limited

General Partnership

2 or more individuals join together to carry out the business.

PROS:

¤  Unlimited number of people involved ¤  Can raise additional monies ¤  Can add skilled partners ¤  Partners share control ¤  Partners divide profits or losses ¤  Taxed on individual tax return

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CONS ¤ Partner 100% liable for the other’s debts/acts ¤  More costly than sole proprietorship ¤ 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!

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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

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CONS

¤  General partner 100% liable for debts and acts of all ¤  Limited partners can lose protection ¤  More costly than sole proprietorship ¤  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

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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

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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?

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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

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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??

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Finally, a C-Corporation Pros

¤  Legal life of its own ¤  Limited liability for shareholders ¤  Unlimited number of people involved ¤  Capital - sale of stock & borrowing ¤  Control with elected officers & board ¤  Can add skilled personnel ¤  Perpetual life ¤  Can deduct for fringe benefits

The Most Liability Protection

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

The Most Regulated

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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

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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

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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

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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

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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

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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

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STEP 6: Check for Sales Tax

¤  retail sale of property and taxable services ¤  sometimes on food sales

¤  Source: MD COMAR 03.06.01.05

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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

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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

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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

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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

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STEP 10- Hire Your Team

¤ Accountant ¤  Insurance Agent ¤ Lawyer

Even DIYers Need a Business Team

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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

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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

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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 [email protected]

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