|
Neophytes Need to Understand the Complexities of
Corporate Structure
Periodical: Los Angeles Business Journal
Date: June 10-16, 1996 / Volume 18, Number 24
BEVERLY
HILLS - To be, or not to be, a C corporation or an LLC, or a
Subchapter S, or a sole proprietorship or some other form of company -
that is the question.
With
more Angelenos starting up their own ventures, the Business Journal
turned to William Ross, of the Beverly Hills-based Rosenfeld, Meyer
& Susman, LLP law firm, for advice on the proper corporate
structure for neophytes and others. Senior Reporter Benjamin Mark Cole
conducted the interview.
Q.
The good old sole proprietorship - a guy starts his own business.
Still a good format?
A.
It is the simplest and least expensive form and there is favorable tax
treatment, but the sole proprietor is personally liable, and needs to
buy business insurance with that in mind.
Q
How does one avoid personal liability?
A.
You can incorporate. As a
shareholder, the owner or owners enjoy a corporate shield. Day to day
operations rest with management, under direction of a board.
Of course, incorporating costs money.
Q.
How much?
A.
A $100 to incorporate and minimum corporate tax of $800 a year.
But as a corporation, you are supposed to keep minutes of
meetings and other, out-of-pocket expenses for proper maintenance of
the corporation.
Q.
We are seeing the initials "LLP" after more firms.
What gives?
A.
That stands for limited liability partnership, a new form of
partnership available for lawyers and accountants.
The LLP shields partners from personal liability for the
partnership's obligations. It
is available only to certain law and accounting firms.
Q.
How nice. What about for
regular business people?
A.
Well, there is an LLC, for limited liability company, in which owners
are not personally liable, but can still participate in management.
Q.
We seem to be hearing more about Subchapter S corporations.
What are those?
A.
Sole proprietorships, partnerships and most LLCs are not themselves
subject to federal income taxes, and losses may be used to offset
income from other sources. But
a C corporation pays twice - - on corporate income, and then on
dividends. But a
Subchapter S corporation is not federally taxed at the corporate
level.
Q. So what is the best form of business?
A.
It depends on the company and its owners.
Before starting a business, or at least early on, entrepreneurs
should consult with a lawyer and accountant about what format to use,
and then re-evaluate the decision regularly.
Q.
If you are thinking of bringing in investors later after a start-up,
what is the best format?
A.
In many cases, a C corporation is the most customary vehicle.
There is a well-established body of law regulating the rights
of corporations and its shareholders.
Return to top
|
