Page 37 - midJersey Business - March 2015

Registration
what the partnership agreement states, unlike other enti-

ties. A limited partnership must consist of at least one Before a company can begin business, it must irst 1
general partner. Limited partners are generally not liable register with federal and state authorities and apply for an

for the obligations of the partnership unless they partici- employer identiication number. For state iling purposes,
pate in the control of the partnership.
some states also will require an annual iling fee, minimum

tax, franchise tax, regular tax rates, or a combination of
Valuation of the Business
iling fees and taxes. Each state has different iling require-

3 Funding comes primarily in the form of debt and/
ments and how it taxes the entity. A new business should
or equity. Usually in start-ups, equity is the main source be mindful of these cash outlow implications.

of funds, which needs to be evaluated and documented
in writing. Initially undervaluing the company to attract Entity Structure

investors and capital can lead to giving away too much Entrepreneurs should consider the tax and legal 2

ownership that may take signiicant compensation to buy aspects of the various entity structures available. Below are
back when the company grows and expands. Conversely, some highlights:

overvaluing the company can detract from inding inves-
tors and obtaining necessary capital.
Sole proprietorship or single-member limited liabil-

ity company (SMLLC). Sole proprietors report their
Back-Ofice Processes
self-employed income on their personal tax return and

4 Businesses that have employees need to be in are subject to self-employment and Medicare taxes. A sole
compliance with various laws and regulations, including proprietor needs to be mindful that there is not the pro-

Forms W-4 and I-9, as well as quarterly payroll tax returns. tection of personal assets in the case of bankruptcy that
Failure to comply with these iling requirements can lead
is offered by a corporation. An SMLLC is taxed similarly

but does allow for the protection
to substantial penalties that can
of personal assets that is not pro- have disastrous implications on

vided by a sole proprietorship.
the company’s cash lows. Con-
Managing the timeliness of
sideration also should be given

to how payments will be received Corporations. A corporation
cash receipts will help

and setting up accounts receiv- is a separate legal entity which
paying vendors, and timely
able and determining whether reports its net income or loss at
payments can lead to
the service or product is taxable. the corporate level. Sharehold-
Managing the timeliness of cash ers own stock in the corporation
purchase discounts.

receipts will help paying vendors,
and only report a gain or loss
when they sell their stock. The downfall to a corporation and timely payments can lead to purchase discounts.

is the concept of double taxation, as income is taxed at
the corporate level and again when money is taken out Accounting Software

of the corporation by a stockholder (i.e., in the form
5 The best way to manage the back-ofice processes
of a dividend). An “S” corporation is a small business and the overall productivity of the company is by utilizing

corporation, which is organized under the subchapter S a suitable accounting software package. There are several
section of the Internal Revenue Code. There are certain options, from boxed packages to customizable software

requirements in order to qualify as an S corporation. An systems. The more customized the software system, the
S corporation is considered a pass-through entity, mean- more expensive it can become to implement and main-

ing the net income or losses will be reported to each tain. But when properly utilized, these systems can lead to
shareholder based on his or her percent ownership and more informed decisions and, ultimately, more money.

the operating agreement. Shareholders will pay taxes on

an individual level based on the net income or loss that The start-up phase of a business can be exciting, scary,
is reported to them for the period.
and stressful, but with professionals guiding the decision-

making on the above items, it is possible to eliminate
Partnerships (general and limited). Partnerships hidden costs while allowing the entrepreneur to focus on

consist of two or more owners, and the income, losses, the operational aspects of the business. These partner-
and credits pass through to the partners at the individual ships can further lead to long-term friendships and, most

level. Depending on the type of business activity the part- importantly, to a successful and proitable company.
nership is involved in, the partners also might be subject

to self-employment tax. Partnerships can have special
allocations of income, losses, and credits depending on
Kimberly Wirzman is tax manager and Jeffrey Ratkowski, CPA, is senior in the entrepreneurial
business group at WeiserMazars LLP.

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