Subject: Entity Selection
Facts: After 20+ years of working for other firms, Penelope (enrolled agent, age 41), Mark (CPA, age 43), and John (CVA, age 65) want to leave the firms they are currently employed by and become their own bosses. Penelope specializes in taxes, Mark is the auditor, and John is a business valuation expert.
There are so many options available as to how they can structure the new business. The appropriate business entity for any individual(s) will depend on their particular facts and circumstances.
You are a valued colleague and friend of this threesome, and they have come to you seeking advice as to how to structure their new business. They have the knowledge to figure it out themselves but are looking for the advice of an unbiased third party. Please consider the following tax and nontax considerations as you recommend an entity choice to Penelope, Mark, and John.
Part I: Discuss the various forms of organization that are available to Penelope, Mark, and John.
They can set up several different forms of organization. First of all, a sole proprietor is someone who owns an unincorporated business by himself or herself. A general partnership is duties of where all partners participate to some extent in the day-to-day management of the business. Limited partnerships are very different from general partnerships, and are usually set up by companies that invest money in other businesses or real estate. The C Corporation is the standard corporation, while the S corporation has elected a special tax status with the IRS. It gets its name because it is defined in Subchapter S of the Internal Revenue Code. To elect S corporation status when forming a corporation, Form 2553 must be filed with the IRS and all S corporation guidelines met. A limited liability company (LLC) is a flexible form of enterprise that blends elements of partnership and corporate structures. While limited partnerships have at