Fire your Accountant & Hire a Partner

Ready to form a company? Choose one of these…

Posted on 31 May 2010

I don’t want to be repetitive but….. stop before you choose your entity type, consider these issues: legality, taxation, financing, long term goals.  If you have read my last post you will have done this already and can move onto choosing your business form.

A sole proprietorship is what most people are when they first operate their own small business. This form of business organization is easy to form and offers complete control, you can do what you want. But and I mean a big BUT, you are personally liable for all financial obligations of the business and all the taxes as personal income. Yike! That can be expensive.

A partnership involves two or more people who agree to share in the profits or  losses of a business. This means you also share in the RISK. The advantage is that the “partnership” does not carry the tax burden on the profits or the losses. Both profits and losses are passed on to you and your partner and taxed as income in your hands. And of course the liability is shared equally, by this I mean legal liability..

Build your own tower

A corporation is a legal entity that is created for commerce, buying and selling. A corporation is a legal entity, separate from you who form it. The corporation takes all the responsibility. The corporation is treated just like a person; it is taxed and is legally liable for its actions. It makes a profit or loss.

The biggest benefit of corporate status is that you avoid personal liability. What prevents most from forming a corporation is the cost. You now have to keep meticulous records, file information annually and govern your actions differently.

Types of corporations differ based on where you are:

In the USA you could form a: Subchapter “C” Corporation or a Subchapter “ S” Corporation.

Types of Corporations in Canada include: Canadian-controlled private corporation or a Public corporation or a Corporation controlled by a public corporation.

In England there are: Public limited company, a Subsidiary company or a Branch.

Australia has: Proprietary Company and a Public Company.

Each has its own unique characteristics that differentiate it from it’s alternates.  You must do your homework to discover which one works best for your situation.

And Finally…..The popular LLC

The LLC is a form of partnership becoming popular  because it allows you to take advantage of the benefits of the corporation and a  partnership. The key in  this business format is that; profits and losses are passed to you and your partners without direct taxes against the profit of the business  and you are shielded from personal liability.

Ultimately your choice is dependent on what we discussed last week. Don’t skip the important questions or you will spend money changing your structure to when you change your mind. This costs money, lot’s of money.

Any questions? Email me directly or post a comment.

On your Team,

Mark