It is important to determine the correct type of business before you get started.
Business formation and entity selection frequently involve engaging a CPA. At first blush, this is a straightforward proposition. At second blush, it isn’t. Let me explain.
In U.S. Tax Law, there are four possible selections: C Corporations, S Corporations, Partnerships, sole proprietors and LLCs. Plus a few twists, that we won’t discuss here. These are each put into law for specific reasons and because the United States covers the better part of a continent with economic activity encompassing any product known to humans. Given the scope of our economic activity, there is no reason to expect that will be simple. It is complex.
The entity options in the law accommodate a variety business architecture. Let me discuss a few points:
Shareholders/Partners: S Corporation shareholders must be natural persons limited to U.S. and Resident Aliens. In community property states (Texas) husband and wife are one shareholder. You need to know this because without planning you might in the future, invite your partner’s former spouse to the board of directors.
Formation of Capital: The rules for contributing capital are unique to each entity type. Furthermore, rules for basis calculation vary from entity to entity. Could be very important.
Insolvent Shareholder/Partner: It would be prudent to know your states rules.
If you have questions or would like to setup an appointment with me, please contact me today.