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V O L . X X I I N O. I I JA N UA R Y 2 5 , 2 0 1 6 22 H OW TO B Y C H R I S T O P H E R W R I G H T Choose the right structure for your business W hether you have already built your own profi table business or you are just starting to put into motion a great idea for a new one, the proper business structure can help you avoid unnecessary pitfalls and assist you down the path of success. Which business structure is right for you? Sole proprietorship, partnership, limited liability company, S corporation or C corporation? Unfortunately, the answer may be elusive. Like all business deci- sions, choosing the right structure requires a careful weighing of the costs and benefi ts associated with each form. By following the proper steps and seeking guidance from a qualifi ed attor- ney, the decision may become clearer. Below we list four steps that will help guide you through the process of fi nd- ing the right structure for your business. 1. Determine your liabilities: What you sell or what service you pro- vide may be the most important factor in determining the type of business structure you choose. Are you providing a service that may pose a risk to others? Are you selling a product that could potentially be dangerous? If that's the case, a sole proprietorship or partner- ship is not the right choice. While these two business forms are the simplest and off er the greatest fl exibility, they are not considered separate legal entities and off er no protection to their owners from liabilities that the business may create. Furthermore, under general partnerships, one partner may be liable for the other's poor decisions. On the other hand, limited liability companies (LLCs) and corporations, if properly established and maintained, can provide their owners signifi cant protection from the company's debts and liabilities. 2. Estimate your tax liabilities: e profi tability of a company and the tax liabilities it will incur should weigh heavily when you consider what form your business should take. Sole propri- etorships, partnerships and LLCs all have pass-through taxation. is means that the business itself is not taxed but rather all income and expenses from the business fl ow through to the owners' tax returns. While this may be advantageous in some cases, the high rate of self-employment tax (contribu- tions to Medicare and Social Security) on these types of entities may prove burdensome. S corporations allow for business owners to take a reason- able salary that is subject to the self- employment tax, while also allowing the pass through of the company's net income that is not taxed in this man- ner. LLCs may be treated as S corpo- rations for tax purposes if the proper elections are made. C corporations are open to a double taxation where a corporation's profi ts are taxed and distributions to the shareholders in the form of dividends are also taxed. 3. Consider how fl exible your business must be: How quickly your company's needs change and who will make important decisions are fac- tors that should be considered. A sole proprietor has complete control of his or her business. An LLC's operating agreement can be tailored to meet the specifi c needs of the company and can be drafted in such a way that all mem- bers take an active role in running the business. Corporations, although often considered less fl exible than other business forms, may provide a level of stability that could attract outside investors or make changes in owner- ship less complicated. 4. Be prepared to change: Although the decision you make now can help your business grow and avoid unnec- essary costs and liabilities, remember that over time your company's needs may change. Whenever you are con- sidering the future of your company, ask yourself: Have my tax liabilities changed? Are we now selling prod- ucts or providing services that put my personal assets at a higher risk? Do we need new capital to expand or should we bring on new owners? Remember, once you choose the structure for your business, the choice is not set in stone. With the proper guidance from a qualifi ed attorney and tax professional, your business structure can change to fi t the dynamic needs of your business. ChriStoPher Wright, an attorney at the Augusta law fi rm Lipman & Katz, handles complex probate concerns, litigation matters and business transactions. He can be reached at cWright @ liPmanKatz.com Jason and Kate Rayne Lanman Rayne, PLLC Jason and Kate Rayne Lanman Rayne, PLLC We're in business to help your business. Member FDIC Member FDIC We work hard to do things right. We're as passionate about our business as we are about our customers. Ask us about our business solutions that can help your business grow. www.bangor.com | 1.877.Bangor1

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