When engaging in business transactions with friends, it can be very tempting to try to save the time and money involved with formalizing the arrangement. Everyone knows that lawyers are expensive. You know and trust the person you're dealing with, so why not just trust them to keep their word now? Maybe you’re worried that making a friend sign a written agreement will make them think you don't trust them. Who really wants to talk about how a deal could go wrong when you and your partner are so pumped about your great business idea? I would suggest having this conversation early is much better than skipping it and having the deal go south after you've both invested time and money. Despite your excitement about your new venture, things can, and often do, go wrong and you need a plan in place for that possibility.
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Way back in June I briefly discussed some of the challenges that come with owning real estate jointly with others. At that time I suggested that a Limited Liability Company (LLC) may be a useful tool to limit conflicts from arising. In this post, I hope to go a little more in depth on why this is the case.
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Limited liability, it's the reason everyone tells you that you need an LLC when you start up your new business. It's the reason you're paying the State of Maine a $175 filing fee and $85 a year to file an annual report.
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It would be impossible to fully explain the intricacies of the various federal business tax regimes in a blog post. I can assure you, nobody wants to read that. However, I will attempt to briefly introduce some keep pieces of the following business tax regimes:
- Sole Proprietor (Schedule C of an individual return)
- C Corporation (Subchapter C - Form 1120)
- S Corporation (Subchapter S - Form 1120s)
- Partnership (Subchapter K - Form 1065)
When starting a new business several considerations need to be taken into account when deciding what business entity, if any, you should form. Every business has it's own unique circumstances, however, there are two major benefits that can come with forming a business entity. First, entities formed pursuant to a state statute give owners the benefit of liability protection. Second, there is also a potential for tax savings coming in the form of a reduction of self employment taxes.
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