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BarCamp 2010, LLCs vs. Corporations: pick one and start TODAY
1. Corporations
vs
LLCs
Why you should pick one and start NOW!
b y K e v i n T h o m p s o n
w w w. l a w o f f i c e k t. c o m
@ k e v i n _ t h o m p s o n
w w w.f a c e b o o k . c o m / k e v i n t h o m p s o n
#bcn10entity
7. What are my
choices?
• Sole Proprietorship
• General Partnerships
• Limited Partnerships
• Limited Liability
Companies
• “S” Corporations
• “C” Corporations
8. What are my
choices?
• Sole Proprietorship
• General Partnerships
• Limited Partnerships
• Limited Liability
Companies
• “S” Corporations
• “C” Corporations
10. Considerations
Type of business
Long term goals
How many owners
Will the business borrow money
Will the business EVER seek investors
Will another company own a share
What restrictions do owners want on exit plans
17. “S” Corporation
Advantages
Simple to form
Flow through taxation
No self-employment tax
Limited liability
18. “S” Corporation
Advantages
Simple to form
Flow through taxation
No self-employment tax
Limited liability
Low cost formation and
annual fee ($100 / $10)
23. “S” Corporation
Disadvantages
Restrictions on ownership
Cannot own interest via a
business, must be US citizen
24. “S” Corporation
Disadvantages
Restrictions on ownership
Cannot own interest via a
business, must be US citizen
No preferred stock
offerings
25. “S” Corporation
Disadvantages
Restrictions on ownership
Cannot own interest via a
business, must be US citizen
No preferred stock
offerings
Hall Income Tax a/k/a
Tennessee’s state income tax
26. Who would want a S-Corp?
Home office
No employees
One person band
Free lance work
Zero desire for funds
38. “C” Corporation
Disadvantages
Double tax
Many formalities i.e.
corporate resolutions, annual
meetings, etc.
39. “C” Corporation
Disadvantages
Double tax
Many formalities i.e.
corporate resolutions, annual
meetings, etc.
Lack of flexibility: strict
legal boundaries re. shares.
40. Who would want a C-Corp?
Multiple employees
Angel or Venture funds
Visions of going public
Stock incentives
Multiple rounds of funding
Legal protections
Anticipate a stock swap merger
42. For Office Use Only
C HAR TE R
(For-Profit Corporation)
Corporate Filings
312 Eighth Avenue North
6th Floor, William R. Snodgrass Tower
Nashville, TN 37243
The undersigned acting as incorporator(s) of a for-profit corporation under the provisions of the Tennessee Business
Corporation Act adopts the following Articles of Incorporation.
1. The name of the corporation is:
[NOTE: Pursuant to Tennessee Code Annotated § 48–14–101(a)(1), each corporation name must contain the words
corporation, incorporated, or company or the abbreviation corp., inc., or co.]
2. The number of shares of stock the corporation is authorized to issue is:
3. The name and complete address of the corporation's initial registered agent and office located in the
State of Tennessee is:
( Name )
TN
( Street Address) (City) (State/Zip Code)
( County )
4. List the name and complete address of each incorporator:
( Name ) ( Include: Street Address, City, State and Zip Code )
( Name ) ( Street Address, City, State and Zip Code )
( Name ) ( Street Address, City, State and Zip Code )
5. The complete address of the corporation's principal office is:
( Street Address ) ( City ) ( State/County/Zip Code )
6. The corporation is for profit.
7. If the document is not to be effective upon filing by the Secretary of State, the delayed effective date and time are:
Date , , Time (Not to exceed 90 days.)
8. Other provisions:
Signature Date Incorporator's Signature
Incorporator's Name (typed or printed)
SS-4417 (Rev. 9/04) Filing Fee: $100 RDA 1678
43.
44. Action of Incorporator
Consent of Board of Directors
Consent of Shareholders
Bylaws
Sub-S election (if you want “S”
corporation)
50. LLC
Advantages
Flow through taxation
No limitation on
ownership
Can create multiple
classes of shares and SERIES
51. LLC
Advantages
Flow through taxation
No limitation on
ownership
Can create multiple
classes of shares and SERIES
Great if raising capital
52. LLC
Advantages
Flow through taxation
No limitation on
ownership
Can create multiple
classes of shares and SERIES
Great if raising capital
No Hall Tax (if owners are
TN residents)
53. LLC
Advantages
Flow through taxation
No limitation on
ownership
Can create multiple
classes of shares and SERIES
Great if raising capital
No Hall Tax (if owners are
TN residents)
More flexibility, fewer legal
impediments
54. LLC
Advantages
Flow through taxation
No limitation on
ownership
Can create multiple
classes of shares and SERIES
Great if raising capital
No Hall Tax (if owners are
TN residents)
More flexibility, fewer legal
impediments
Can be converted to a
corporation
55. LLC
Advantages
Flow through taxation
No limitation on
ownership
Can create multiple
classes of shares and SERIES
Great if raising capital
No Hall Tax (if owners are
TN residents)
More flexibility, fewer legal
impediments
Can be converted to a
corporation
Flexibility in management
56. LLC
Advantages
Flow through taxation
No limitation on
ownership
Can create multiple
classes of shares and SERIES
Great if raising capital
No Hall Tax (if owners are
TN residents)
More flexibility, fewer legal
impediments
Can be converted to a
corporation
Flexibility in management
member-managed
57. LLC
Advantages
Flow through taxation
No limitation on
ownership
Can create multiple
classes of shares and SERIES
Great if raising capital
No Hall Tax (if owners are
TN residents)
More flexibility, fewer legal
impediments
Can be converted to a
corporation
Flexibility in management
member-managed
manager-managed
58. LLC
Advantages
Flow through taxation
No limitation on
ownership
Can create multiple
classes of shares and SERIES
Great if raising capital
No Hall Tax (if owners are
TN residents)
More flexibility, fewer legal
impediments
Can be converted to a
corporation
Flexibility in management
member-managed
manager-managed
director managed
63. LLC
Disadvantages
Law is not developed:
not much precedence
for companies going public
64. LLC
Disadvantages
Law is not developed:
not much precedence
for companies going public
more room for litigation
65. LLC
Disadvantages
Law is not developed:
not much precedence
for companies going public
more room for litigation
Filing fee / annual fee
higher ($300 / $300 per
year minimum)
66. LLC
Disadvantages
Law is not developed:
not much precedence
for companies going public
more room for litigation
Filing fee / annual fee
higher ($300 / $300 per
year minimum)
Some companies prefer to
acquire shares instead of
assets in a merger.
67. Who would want a LLC?
Management flexibility
Angel or Venture funds
Zero corporate formalities
Prefers asset transactions
Multiple business interests
Easy transference of membership interest
68. Illustration of entity level taxation
vs. flow-through taxation
C-corporation LLC/s-corp
Net Income $100 $100
Corporate Tax Rate 35% 0%
Entity Tax Liability on Income -$35 $0
Distribution to Owner $65 $100
Tax Rate Imposed on Distribution 15% (Dividend Rat) 0%
Owner Tax Rate on Income 0% 35%
Tax Liability -$9.75 -$35
After-Tax Amount $55.25 $65.00
70. For Office Use Only
ARTICLES OF ORGANIZATION
(LIMITED LIABILITY COMPANY)
(For use on or after 7/1/2006)
Corporate Filings
312 Eighth Avenue North
6th Floor, William R. Snodgrass Tower
Nashville, TN 37243
The Articles of Organization presented herein are adopted in accordance with the provisions of
the Tennessee Revised Limited Liability Company Act.
1. The name of the Limited Liability Company is:
(NOTE: Pursuant to the provisions of TCA §48-249-106, each limited Liability Company name
must contain the words “Limited Liability Company” or the abbreviation “LLC” or “L.L.C.”)
2. The name and complete address of the Limited Liability Company’s initial registered agent
and office located in the state of Tennessee is:
(Name)
(Street address) (City) (State/Zip Code)
(County)
3. The Limited Liability Company will be: (NOTE: PLEASE MARK APPLICABLE BOX)
Member Managed Manager Managed Director Managed
4. Number of Members at the date of filing, if more than six (6): .
5. If the document is not to be effective upon filing by the Secretary of State, the delayed
effective date and time is: (Not to exceed 90 days)
Date: , Time:
6. The complete address of the Limited Liability Company’s principal executive office is:
(Street Address) (City) (State/County/Zip Code)
7. Period of Duration if not perpetual:
8. Other Provisions:
9. THIS COMPANY IS A NONPROFIT LIMITED LIABILITY COMPANY (Check if applicable)
Signature Date Signature
Signer’s Capacity (if other than individual capacity) Name (printed or typed)
SS-4270 (Rev. 05/06) Filing Fee: $50 per member (minimum fee = $300, maximum fee = $3,000 RDA 2458
80. Illustration of tax savings by running
expenses through your business
Personal / W2 Entity / 1099
Net Income $50,000 $50,000
Internet connection 0 $500
Car payment 0 $5,000
Office Supplies / Tech 0 $3,000
Meals / Entertainment 0 $3,000 * .5 = $1,500
Travel 0 $2,000
Home office 0 $500
Marketing 0 $2,500
Taxable Income $50,000 $35,000
Tax (35%) $17,500 $12,250
Difference $5,250
81. Illustration of tax savings by running
expenses through your business
Personal / W2 Entity / 1099
Net Income $50,000 $50,000
Internet connection 0 $500
Car payment 0 $5,000
Office Supplies / Tech 0 $3,000
Meals / Entertainment 0 $3,000 * .5 = $1,500
Travel 0 $2,000
Home office 0 $500
Marketing 0 $2,500
Taxable Income $50,000 $35,000
Tax (35%) $17,500 $12,250
Difference $5,250
84. Attendees are walking away with
all of the pertinent documents to
get started: a value of over
$2,000.
Corporate
LLC Forms
Forms
Action of Incorporator
Consent of Board of Operating Agreement
Directors Initial Board
Consent of Shareholders Resolution
Bylaws Subscription
Sub-S election (if you Agreements
want “S” corporation)
85. about Me
I’m an attorney and entrepreneur. I own and operate The Law Office of Kevin
Thompson and specialize in providing legal services for startup direct sales
organizations. I’m write a lot and I’ve published multiple ebooks accruing over
65,000 reads and 2,500 downloads.
Contact me via: www.about.me/kevinthompson.