Business Law Workshop: To Inc. or Not to Inc.?

The Law Office ofBryan M. Griffith, LLC

Business Law Workshop ::Starting a Business? To Inc. or not to Inc.?

BMGLaw.com | 614.349.4141 | [email protected]

04/10/2023Copyright © 2011 Bryan M. Griffith, LLC

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Disclaimers :: Yes, I am a Lawyer While I am an attorney, I am not YOUR

ATTORNEY (unless I am), and no attorney-client relationship is being formed by your attendance today.

IRS Circular 230 Disclosure. Consistent with IRS regulations, this is to notify you that any federal tax advice contained herein is not intended or written to be used, and cannot be used by anyone for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code, or for promoting, marketing, or recommending to another person any transaction, arrangement, or matter addressed herein.


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What you will learn from this presentation Why to organize your business as a legally

protected business entity.

How to walk through the filing process to establish an entity.

How to use your entity to limit your risks.


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Business Law Workshop: Starting a BusinessTo Inc. or Not to Inc.

Agenda1. Entities:

Types of Business Entities

2. Formation Activity: A new venture in footwear

3. Signing Documents Activity:How to use your entity

4. Questions & Open Forum


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Business Law Workshop ::Entities

Descriptions and features of each type of business entity.


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Entities :: Managing Two Types of Risk Legal Liability

Negligence Lawsuits Creditors Employee lawsuits

Engage an attorney to discuss the potential liability for your business

Tax Liability

Engage a tax advisor early to help with entity selection


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Entities :: Default Entities

Sole Proprietor General Partnership

Statutory Entities Limited Partnership Corporation Limited Liability Company

Tax Status Subchapter C (C Corporation) Subchapter S (S Corporation) Disregarded Pass Through Entity


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Entities :: Default Entities Default Entities

Sole Proprietor General Partnership

If you already started your business and you didn’t file anything with the state, then your business is one of these.

Liability is only limited by the protection of bankruptcy


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Entities :: Statutory :: Limited Partnership Organizing Document

Certificate of Limited Partnership Compared to a General Partnership

Can limit the liability of some partners Why you probably don’t want to be part of

one: You cannot easily sell your interest in the

partnership If you are a (or the) General Partner, your liability

is not limited


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Entities :: Statutory :: Corporation Organizing Document

Articles of Incorporation Advantages

Free transfer of ownership interests Familiar to business partners Employee-owner employment taxes are deductible

Disadvantages Double Taxation Complicated record keeping requirements Free transfer of ownership interests

Ownership: Shareholders Payments to owners: Dividends


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Entities :: Statutory :: LLC Organizing Document

Articles of Organization Advantages

Inexpensive to form with minimal requirements Becoming familiar to business partners Can limit liability to the assets of the business

Disadvantages Self-employment tax on all distributions Multiple-member LLCs should have an Operating

Agreement and Buy/Sell Agreement Ownership: Members Payments to Owners: Distributions


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Entities :: Tax Status :: C Corp Rates

First $50,000 15% Then, up to $75,000 25% Then, up to $100,000 34% Then, up to $335,000 39%

Plus, individual income tax on all dividends Exception for Personal Service Corporations

Flat Rate 35% Accounting, actuarial science, architecture,

consulting, engineering, health (including veterinary services), law, and the performing arts


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Entities :: Tax Status :: S Corp Rates (individual)

First $8,375 10% Then, up to $34,000 15% Then, up to $82,400 25% Then, up to $171,850 28% Then, up to $373,650 33%, and 35% over this

bracket Must pay owner-employees “reasonable

compensation” before dividends Basis in corporation may limit

compensation/benefits May not deduct health insurance unless paid by

corp.


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Entities :: Tax Status :: Disregarded Entity Rates (individual)

First $8,375 10% Then, up to $34,000 15% Then, up to $82,400 25% Then, up to $171,850 28% Then, up to $373,650 33%, and 35% over this bracket

SE Tax: 13.3% up to $106,800, and 2.9% thereafter. Business income is taxed once on the owner’s 1040. No complicated record keeping requirements. After standard business deductions, distributions are

treated as ordinary income.


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Business Law Workshop ::Entity Formation

Creating an Ohio LLC


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Entity Formation :: StepsSteps1. Pick a Name

Google.comwww.sos.state.oh.usCheck domain name

2. Download Form from www.sos.state.oh.us

3. Fill it out leaving all optional fields blank

4. Apply for an EIN from the IRS


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Entity Formation :: What is a Statutory Agent? Responsible party who receives renewal

notices from the Secretary of State, and can receive service of a lawsuit.

Must be located in Ohio Can be an individual or a corporation (not an

LLC) Corporate Statutory Agents cost about $150

per year You can be your own statutory agent If you have an ongoing relationship with an

attorney, you can ask the attorney to serve as statutory agent at a low cost


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Business Law Workshop ::Using Your Entity

Once you have created a business entity, protect your assets by using the entity to sign documents


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Using Your Entity :: Where and When On signs and documents Establish a separate bank account

Don’t pay for personal expenses from your business account

Read your organizing documents and follow them. If they don’t match your practices, change them. Document changes

Sign documents as an agent of your business entity


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Using Your Entity :: How to sign like an agent Ideal

Bryan M. Griffith, LLCby: Bryan M. Griffith, member

Bryan M. Griffith, Inc.by: Bryan M. Griffith, shareholder/director

Write in the missing parts anywhere you can. Train your employees who are authorized to

sign on behalf of the company.


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Business Law Workshops :: Summary

Create a business entity as soon as you realize you have started a business

Engage two important advisors before entity formation: Business Attorney Tax Advisor

Use your entity Sign documents as an agent of your entity Put the legal name of the entity on documents,

and signs


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Business Law Workshops ::Questions


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Questions Can an LLC that has filed taxes as a disregarded

entity (i.e. 1040 schedule C) change to being taxed as an S-Corp? If so, how? Yes. File Form 2553 before March 15 of your next taxable

year. Generally, you can only change once every 60 months.

At what point is the extra filing burden of an S-Corp worthwhile for a small business owner (due to tax savings)? Is it just a simple financial calculation? Additional restrictions on number of shareholders and

basis limits on dividends and losses are also an issue. Failure to follow rigid formalities will result in corporate

Double Taxation


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QuestionsBusiness Revenue $ 250,000.00 Business Revenue $ 100,000.00 Business Revenue $ 50,000.00

Owner Salary $ 100,000.00 Owner Salary $ 50,000.00 Owner Salary $ 50,000.00

Business Income $ 150,000.00 Business Income $ 50,000.00 Business Income $ -

LLC Distribution $ 150,000.00 LLC Distribution $ 50,000.00 LLC Distribution $ -

S-Corp Dividend $ 150,000.00 S-Corp Dividend $ 50,000.00 S-Corp Dividend $ -

LLC Ordinary Income $ 250,000.00 LLC Ordinary Income $ 100,000.00 LLC Ordinary Income $ 50,000.00

LLC Fed Tax $ 67,616.70 LLC Fed Tax $ 21,709.25 LLC Fed Tax $ 7,709.25

LLC SE Taxes $ 18,357.20 LLC SE Taxes $ 13,300.00 LLC SE Taxes $ 6,650.00

Total LLC Taxes $ 85,973.90 Total LLC Taxes $ 35,009.25 Total LLC Taxes $ 14,359.25

S-Corp Ordinary Income $ 100,000.00 S-Corp Ordinary Income $ 50,000.00 S-Corp Ordinary Income $ 50,000.00

S-Corp non-taxable Dividend $ 150,000.00 S-Corp non-taxable Dividend $ 50,000.00 S-Corp non-taxable Dividend $ -

S-Corp SE Tax $ 13,300.00 S-Corp SE Tax $ 6,650.00 S-Corp SE Tax $ 6,650.00

S-Corp Fed Tax $ 67,616.70 S-Corp Fed Tax $ 21,709.25 S-Corp Fed Tax $ 7,709.25

Total S-Corp Tax $ 80,916.70 Total S-Corp Tax $ 28,359.25 Total S-Corp Tax $ 14,359.25

S-Corp Savings $ 5,057.20 S-Corp Savings $ 6,650.00 S-Corp Savings $ -

Percentage of Tax Saved 6% 19% 0%


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QuestionsBusiness Revenue $ 250,000.00 Business Revenue $ 100,000.00 Business Revenue $ 50,000.00

Owner Salary $ 100,000.00 Owner Salary $ 50,000.00 Owner Salary $ 50,000.00

Business Income $ 150,000.00 Business Income $ 50,000.00 Business Income $ -

LLC Distribution $ 150,000.00 LLC Distribution $ 50,000.00 LLC Distribution $ -

S-Corp Dividend $ 150,000.00 S-Corp Dividend $ 50,000.00 S-Corp Dividend $ -

LLC Ordinary Income $ 250,000.00 LLC Ordinary Income $ 100,000.00 LLC Ordinary Income $ 50,000.00

LLC Fed Tax $ 67,616.70 LLC Fed Tax $ 21,709.25 LLC Fed Tax $ 7,709.25

LLC SE Taxes $ 18,357.20 LLC SE Taxes $ 13,300.00 LLC SE Taxes $ 6,650.00

Total LLC Taxes $ 85,973.90 Total LLC Taxes $ 35,009.25 Total LLC Taxes $ 14,359.25

S-Corp Ordinary Income $ 100,000.00 S-Corp Ordinary Income $ 50,000.00 S-Corp Ordinary Income $ 50,000.00

S-Corp non-taxable Dividend $ 150,000.00 S-Corp non-taxable Dividend $ 50,000.00 S-Corp non-taxable Dividend $ -

S-Corp SE Tax $ 13,300.00 S-Corp SE Tax $ 6,650.00 S-Corp SE Tax $ 6,650.00

S-Corp Fed Tax $ 67,616.70 S-Corp Fed Tax $ 21,709.25 S-Corp Fed Tax $ 7,709.25

Total S-Corp Tax $ 80,916.70 Total S-Corp Tax $ 28,359.25 Total S-Corp Tax $ 14,359.25

S-Corp Savings $ 5,057.20 S-Corp Savings $ 6,650.00 S-Corp Savings $ -

Percentage of Tax Saved 6% 19% 0%


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Questions Can a business entity protect me from

medical/legal/professional malpractice claims? No. Professional negligence is personal by statute, and

the entity will not protect you. Obtain insurance for protection. However, the entity will protect you from non-professional negligence such as creditors, personal injuries, and employment disputes.

Once I create the entity, how do I use it to protect my personal assets? Make it the face of your business and sign your

documents as an agent of the entity and not personally. Look out for Personal Guarantees.


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Business Law Workshops ::Questions


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Business Law Workshops ::Open Forum

Thank you for your attendance and participation today.

Please visit my website: BMGLaw.com Please call or e-mail me for an individual

[email protected]

Business Law Workshop: To Inc. or Not to Inc.?

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