1. Business Law Workshop ::Starting a Business? To Inc. or not to Inc.? BMGLaw.com | 614.349.4141 | info@BMGLaw.com

2. Disclaimers :: Yes, I am a Lawyer 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 2 While I am an attorney, I am not YOUR ATTORNEY (unless I am), and no attorney-client relationship is being formed by your attendance today. IRS Circular 230 Disclosure. Consistent with IRS regulations, this is to notify you that any federal tax advice contained herein is not intended or written to be used, and cannot be used by anyone for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code, or for promoting, marketing, or recommending to another person any transaction, arrangement, or matter addressed herein.

3. What you will learn from this presentation 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 3 Why to organize your business as a legally protected business entity. How to walk through the filing process to establish an entity. How to use your entity to limit your risks.

4. Business Law Workshop: Starting a BusinessTo Inc. or Not to Inc. 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 4 Agenda Entities: Types of Business Entities Formation Activity: A new venture in footwear Signing Documents Activity:How to use your entity Questions & Open Forum

5. Business Law Workshop ::Entities Descriptions and features of each type of business entity. 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 5

6. Entities :: Managing Two Types of Risk 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 6 Legal Liability Negligence Lawsuits Creditors Employee lawsuits Engage an attorney to discuss the potential liability for your business Tax Liability Engage a tax advisor early to help with entity selection

7. Entities :: 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 7 Default Entities Sole Proprietor General Partnership Statutory Entities Limited Partnership Corporation Limited Liability Company Tax Status Subchapter C (C Corporation) Subchapter S (S Corporation) Disregarded Pass Through Entity

8. Entities :: Default Entities 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 8 Default Entities Sole Proprietor General Partnership If you already started your business and you didn’t file anything with the state, then your business is one of these. Liability is only limited by the protection of bankruptcy

9. Entities :: Statutory :: Limited Partnership 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 9 Organizing Document Certificate of Limited Partnership Compared to a General Partnership Can limit the liability of some partners Why you probably don’t want to be part of one: You cannot easily sell your interest in the partnership If you are a (or the) General Partner, your liability is not limited

10. Entities :: Statutory :: Corporation 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 10 Organizing Document Articles of Incorporation Advantages Free transfer of ownership interests Familiar to business partners Employee-owner employment taxes are deductible Disadvantages Double Taxation Complicated record keeping requirements Free transfer of ownership interests Ownership: Shareholders Payments to owners: Dividends

11. Entities :: Statutory :: LLC 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 11 Organizing Document Articles of Organization Advantages Inexpensive to form with minimal requirements Becoming familiar to business partners Can limit liability to the assets of the business Disadvantages Self-employment tax on all distributions Multiple-member LLCs should have an Operating Agreement and Buy/Sell Agreement Ownership: Members Payments to Owners: Distributions

12. Entities :: Tax Status :: C Corp 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 12 Rates First $50,000 15% Then, up to $75,000 25% Then, up to $100,000 34% Then, up to $335,000 39% Plus, individual income tax on all dividends Exception for Personal Service Corporations Flat Rate 35% Accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts

13. Entities :: Tax Status :: S Corp 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 13 Rates (individual) First $8,375 10% Then, up to $34,000 15% Then, up to $82,400 25% Then, up to $171,850 28% Then, up to $373,650 33%, and 35% over this bracket Must pay owner-employees “reasonable compensation” before dividends Basis in corporation may limit compensation/benefits May not deduct health insurance unless paid by corp.

14. Entities :: Tax Status :: Disregarded Entity 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 14 Rates (individual) First $8,375 10% Then, up to $34,000 15% Then, up to $82,400 25% Then, up to $171,850 28% Then, up to $373,650 33%, and 35% over this bracket SE Tax: 13.3% up to $106,800, and 2.9% thereafter. Business income is taxed once on the owner’s 1040. No complicated record keeping requirements. After standard business deductions, distributions are treated as ordinary income.

15. Business Law Workshop ::Entity Formation Creating an Ohio LLC 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 15

16. Entity Formation :: Steps 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 16 Steps Pick a NameGoogle.comwww.sos.state.oh.usCheck domain name Download Form from www.sos.state.oh.us Fill it out leaving all optional fields blank Apply for an EIN from the IRS

17. Entity Formation :: What is a Statutory Agent? 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 17 Responsible party who receives renewal notices from the Secretary of State, and can receive service of a lawsuit. Must be located in Ohio Can be an individual or a corporation (not an LLC) Corporate Statutory Agents cost about $150 per year You can be your own statutory agent If you have an ongoing relationship with an attorney, you can ask the attorney to serve as statutory agent at a low cost

18. Business Law Workshop ::Using Your Entity Once you have created a business entity, protect your assets by using the entity to sign documents 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 18

19. Using Your Entity :: Where and When 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 19 On signs and documents Establish a separate bank account Don’t pay for personal expenses from your business account Read your organizing documents and follow them. If they don’t match your practices, change them. Document changes Sign documents as an agent of your business entity

20. Using Your Entity :: How to sign like an agent 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 20 IdealBryan M. Griffith, LLCby: Bryan M. Griffith, memberBryan M. Griffith, Inc.by: Bryan M. Griffith, shareholder/director Write in the missing parts anywhere you can. Train your employees who are authorized to sign on behalf of the company.

21. Business Law Workshops :: Summary 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 21 Create a business entity as soon as you realize you have started a business Engage two important advisors before entity formation: Business Attorney Tax Advisor Use your entity Sign documents as an agent of your entity Put the legal name of the entity on documents, and signs

22. Business Law Workshops ::Questions 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 22

23. Questions 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 23 Can an LLC that has filed taxes as a disregarded entity (i.e. 1040 schedule C) change to being taxed as an S-Corp? If so, how? Yes. File Form 2553 before March 15 of your next taxable year. Generally, you can only change once every 60 months. At what point is the extra filing burden of an S-Corp worthwhile for a small business owner (due to tax savings)? Is it just a simple financial calculation? Additional restrictions on number of shareholders and basis limits on dividends and losses are also an issue. Failure to follow rigid formalities will result in corporate Double Taxation

24. Questions 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 24

25. Questions 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 25

26. Questions 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 26 Can a business entity protect me from medical/legal/professional malpractice claims? No. Professional negligence is personal by statute, and the entity will not protect you. Obtain insurance for protection. However, the entity will protect you from non-professional negligence such as creditors, personal injuries, and employment disputes. Once I create the entity, how do I use it to protect my personal assets? Make it the face of your business and sign your documents as an agent of the entity and not personally. Look out for Personal Guarantees.

27. Business Law Workshops ::Questions 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 27

28. Business Law Workshops ::Open Forum 1/20/2011 Copyright © 2011 Bryan M. Griffith, LLC 28 Thank you for your attendance and participation today. Please visit my website: BMGLaw.com Please call or e-mail me for an individual consultation614.349.4141info@BMGLaw.com