Business Tax Planning

Which Business Entity Should I Choose for My Business?

Choice of entity is an important decision in the formation of a business.  State law generally allows for sole proprietorships, general partnerships, corporations, limited partnerships, limited liability companies (LLCs), limited liability partnerships, and other potential entity forms.  In addition, federal tax considerations may influence the choice of entity.  Under federal tax law, an entity may be treated as a disregarded entity, a partnership, an association taxed as a partnership, an S-Corporation, and other potential special categories.

What Are the Options for the Legal Structure or Formation of My Business?

There are many potential options for the legal structure of a business entity.  The options vary from state to state, but generally include:

  • For-Profit Corporation
  • Nonprofit Corporation
  • Professional Corporation
  • Professional Association
  • Limited Liability Company
  • Limited Partnership
  • Limited Liability Partnership

Do I Simply Need to File a Certificate of Formation (or Equivalent) with the Secretary of State to Start My Business?

Certain initial documentation is necessary to file with the Secretary of State to legally form your business entity. However, you should be mindful of other planning and documentation considerations, such as: drafting bylaws or an operating agreement, requesting an employer identification number, issuing securities or membership interests, and determining initial federal and state tax filing obligations.

What Is a Registered Agent?

According to the Texas Secretary of State, a registered agent is an individual Texas resident or a domestic entity, or a foreign entity that has qualified or registered to transact business in Texas who is responsible for receiving and forwarding service of process or official notices addressed to an entity. Your business entity cannot serve as the registered agent for your business. While an owner, officer, or employee of your business may serve as the registered agent, many businesses use a third-party service company. Freeman Law can serve as your business’ registered agent for a set annual fee.

Does My Choice of Business Entity Affect My Business’ Federal Taxes?

Yes. It is important to understand the federal tax consequences and options related to your choice in business entity. For example, by default, a limited liability company with more than one owner/member is treated as a partnership for federal tax purposes. However, the business may elect to be treated as a C corporation or an S corporation for federal tax purposes.

Are There Tax or Legal Considerations If I Want to Sell My Business or Purchase Another Business?

Absolutely. There are multiple business, tax, and legal considerations when contemplating certain business transactions. As the buyer or seller, you should seek counsel to assess multiple factors, such as: the seller and/or buyer’s liability exposure related to the business’ past operations, whether the business transaction can be structured in a tax-free manner; whether the transaction should be structured as an asset purchase, stock purchase, or alternative arrangement; the administrative burden related to changing states of operation, transferring business contracts, etc.

Are There Tax Planning Considerations with New Administrations or During Election Years?

Yes. Politicians, particularly presidential candidates, incorporate certain federal tax plans in their platforms. Understanding whether or how the current federal tax regulations and policies will change is crucial to having success with your business. Seeking counsel from tax attorneys is vital—especially tax attorneys that stay well-informed of current and potential changes to federal tax rules, regulations, policies, and audit trends.

Should a Lawyer Review My Contract?

Contracts create legally binding duties and relationships.  Those obligations can be costly.  The legal implications of contractual language can often be difficult to understand and even clear language can create unexpected or unintended consequences.

When Should You Consult a Tax Attorney?

A tax attorney can help guide you through an IRS audit or tax dispute.  Tax attorneys are necessary any time that you need to have a “privileged,” confidential discussion with a tax professional.

In addition, tax attorneys provide sophisticated business and tax planning advice and may be able to provide international tax advice.