Questions To Think About When Determining Your Business Entity
There are many decisions to be made before you even open your business and determine your type of business entity. With so many business entities to choose from and so many tax decisions to make, it is important that you answer the following questions to help you determine what type of business you want to be:
- What is the purpose of the business? To manufacture something, to provide professional services, own real estate? The business purpose of the business will go a long way in determining what type of business to create.
- How many owners will there be?
- Who will be the owners? Are they US citizen, foreign individuals, current business entities?
- Will you need to raise money from outsiders or will the business be self-funded? If outside investment is needed, depending on the amount, you may have to come up with solutions so you do not lose control of the entity.
- Who will run the business from a day-to-day perspective?
- How long do you want to be involved in the business? Are you planning on doing this for just a short time, create it and then sell it, or in it for the long haul?
- Would you want to be in business with any of your co-owners’ families? If not, you will want to make sure there is a buy-sell agreement in place to formulate a buyout of a disabled or deceased owner’s ownership.
These are only a few questions to think about but they are important questions. Answering those questions prior to seeing a professional will help the attorney or your tax professional decide what business entity is best for your needs.
Advantages of a Texas Corporation
A corporation is a business organization constituting an independent entity created by the state pursuant to a corporate charter and the enjoying the powers conferred upon it by law. A corporation is a separate legal entity, distinct from its shareholders, and generally may exercise the same rights and privileges as a natural person. Of necessity, it acts exclusively by and through its agents.
There are certain advantages of the corporate form:
1. Limited Liability – The shareholders of a corporation are not personally liable for the debts and obligations of the corporation, subject to a few exceptions. Thus, the liability of shareholders for corporate losses is limited to the amount of their investment.
2. Centralized Management – Management of corporations is centralized in the board of directors.
3. Continuity of Existence – The corporate entity generally has perpetual existence and continues unaffected by changes in ownership or management.
4. Transferability of Ownership – Shares are typically freely transferable by shareholders.
5. Access to Capital Markets
6. Taxation – Corporations are liable for both federal and state income taxes. The Florida tax rate is 8.84% of taxable net income.
7. Privacy – Ownership in a corporation is private. The only way for it to become known is through the discovery process in litigation.