The taxation law team at Carlile Patchen & Murphy regularly advises as to the tax considerations involved in choosing between doing business as an entity taxed for federal income tax purposes as a C corporation, S corporation or Partnership (i.e., a multi-member limited liability company that has not elected to be taxed as a corporation). Among such considerations are:
- Whether the business owners wish to raise venture capital through the issuance of preferred stock.
- Whether the business owners wish to allocate tax attributes of the business operations other than in accordance with ownership interests.
- Whether the business owners wish to retain earnings to operate and grow the business or expect to distribute sufficient cash to cover taxes on taxable income passing through to the owners.
- Applicability of self-employment taxes.
- The type of fringe benefits to be provided to shareholder employees.
- Whether equity interests are to be provided to employees.
- Whether restricted stock, such as incentive stock options, are to be issued.
- Whether the business owners wish to maximize the number and types of owners of the entity.
- Whether double taxation of the business’s income can be minimized.
- Whether the business is expected to generate losses that could be passed through to its owners.
- Deductibility of payments to retiring owners.
- Whether maintenance of the selected tax structure and attendant accounting is too burdensome or costly.
- Whether the entity contemplates owning an appreciating asset.
- Whether the contribution of appreciated property to the entity is contemplated.
We also advise business owners as to the tax considerations attendant to converting from one form of entity to another when conversion is in the best interests of the business and its owners.