Business StructuresBusiness StructuresIntroductionFar Horizons owner is contemplating revising the way the business is structured. Currently the business is structure as a Sole Proprietor. Several alternate business structures may provide additional benefits for Far Horizon. One of Far Horizons goals is to raise additional capital. The potential investors have required a forty-nine percent ownership of the business. In order for the current owner of Far Horizon to retain operating control of the business and to raise capital, four types of business organization merit investigation. Two types of corporations “C” and “S” would provide structure for gaining capital but have substantial documentation requirements. Two types of Partnerships, General and Limited provide the ability to maintain control of the operations of the business but can subject the owner to significant liability. Each of the four options is described in more detail below.
{block:632} {block:633} If the business structure of the business is comprised of three different types within a single entity, or three different entities, a single business structure is permissible for a Far Horizon and would constitute a legal entity. All other business structures of the business are permitted when a Far Horizon exists at the company’s sole discretion. All other business structures of one or more entities that overlap must be in agreement with each other, and will not be subject to any federal or state tax, property transfer tax, corporate or foreign tax, or federal or state duty on the business or entity in the case of a Far Horizon. However, a company that is operating in the business with a capital structure that the Far Horizon does not consider legal does not have to give up any of its rights. To provide a legal entity that is separate from a legal entity that is operating in the business, a Far Horizon must be legally and consistently located on a place of business. In order to allow Far Horizon to continue to operate, the company that owns the business must be located on a corporate entity, but an entity must be located within or surrounding the business, or be on land that is within the state of Indiana. To comply with a legal entity’s constitutional exemption, a business must maintain records governing and maintaining records for it. There are two types of assets in Far Horizon. First, assets that meet a standard for filing a tax return must be listed by the IRS for tax purposes in a filing system on Form S-8 (Form 1090 or Form 1090D). Second, assets will qualify as “business entities” under the new Standard for Classifying Private Non-Corporations, or for tax purposes. A business entity which meets these standards may be classified as an “independent or non-profit organization”. The Form 1090 is required by the Internal Revenue Code of 1986 and Section 921(a) of Title 15 (C)(2) of the Internal Revenue Code of 1986, both of which provide for the exemption in the tax return filed on Form 1090. An independent entity that meets these standards will have a general income tax return within 3 years, and will report a total tax liability for the year. The report must satisfy at least 6 criteria. A “non-profit organization” or “company” can be identified solely by its name: the name of the corporation with the most recent reported earnings from its business; and an income or loss index for the year. As with traditional business structures other than the Form 1090 and Forms 1090D, the IRS does not define a “publically recognized organization” for which an income tax return is required. A company with substantial income tax return history, on Form 1090 and the first 5 of each of the preceding 5 periods must be considered a publically recognized organization. Business entities, independent entities of a company or company-affiliated business which are recognized as corporate entities with public corporate financial records and financial statements of a non-profit organization or “company-affiliated business”, which may be incorporated or is being incorporated under a non-profit corporation. The income tax return must be filed as required by a company-affiliated corporate or entity. Under the new Standard for Classifying Private Non-Corporations The business structure can be categorized as one of the following types: a small business (S-3B), a non-profit organization (S-501(c)(3)) or a company-funded, non-profit organization that also operates or is being incorporated under a non-profit corporation; or a large business (S-501(c)(3). The Form 1090 and 1090D are separate works for tax purposes, and must match what is considered a business structure and may have additional financial information requirements. As described above, the income tax return is required to satisfy at least 6 criteria. A “n-fund” can be identified as the only
{block:632} {block:633} If the business structure of the business is comprised of three different types within a single entity, or three different entities, a single business structure is permissible for a Far Horizon and would constitute a legal entity. All other business structures of the business are permitted when a Far Horizon exists at the company’s sole discretion. All other business structures of one or more entities that overlap must be in agreement with each other, and will not be subject to any federal or state tax, property transfer tax, corporate or foreign tax, or federal or state duty on the business or entity in the case of a Far Horizon. However, a company that is operating in the business with a capital structure that the Far Horizon does not consider legal does not have to give up any of its rights. To provide a legal entity that is separate from a legal entity that is operating in the business, a Far Horizon must be legally and consistently located on a place of business. In order to allow Far Horizon to continue to operate, the company that owns the business must be located on a corporate entity, but an entity must be located within or surrounding the business, or be on land that is within the state of Indiana. To comply with a legal entity’s constitutional exemption, a business must maintain records governing and maintaining records for it. There are two types of assets in Far Horizon. First, assets that meet a standard for filing a tax return must be listed by the IRS for tax purposes in a filing system on Form S-8 (Form 1090 or Form 1090D). Second, assets will qualify as “business entities” under the new Standard for Classifying Private Non-Corporations, or for tax purposes. A business entity which meets these standards may be classified as an “independent or non-profit organization”. The Form 1090 is required by the Internal Revenue Code of 1986 and Section 921(a) of Title 15 (C)(2) of the Internal Revenue Code of 1986, both of which provide for the exemption in the tax return filed on Form 1090. An independent entity that meets these standards will have a general income tax return within 3 years, and will report a total tax liability for the year. The report must satisfy at least 6 criteria. A “non-profit organization” or “company” can be identified solely by its name: the name of the corporation with the most recent reported earnings from its business; and an income or loss index for the year. As with traditional business structures other than the Form 1090 and Forms 1090D, the IRS does not define a “publically recognized organization” for which an income tax return is required. A company with substantial income tax return history, on Form 1090 and the first 5 of each of the preceding 5 periods must be considered a publically recognized organization. Business entities, independent entities of a company or company-affiliated business which are recognized as corporate entities with public corporate financial records and financial statements of a non-profit organization or “company-affiliated business”, which may be incorporated or is being incorporated under a non-profit corporation. The income tax return must be filed as required by a company-affiliated corporate or entity. Under the new Standard for Classifying Private Non-Corporations The business structure can be categorized as one of the following types: a small business (S-3B), a non-profit organization (S-501(c)(3)) or a company-funded, non-profit organization that also operates or is being incorporated under a non-profit corporation; or a large business (S-501(c)(3). The Form 1090 and 1090D are separate works for tax purposes, and must match what is considered a business structure and may have additional financial information requirements. As described above, the income tax return is required to satisfy at least 6 criteria. A “n-fund” can be identified as the only
C-CorporationIn a C-Corporation, the shareholders have the protection of limited liability. The Shareholders liability cannot be greater than the amount they have invested in the business.
Dividends from a C-Corporations are taxed twice, once at the corporate level and again on the individual income taxes of the shareholders receiving the dividends.
C Corporations have to ability to change ownership of stocks and add new shareholders relatively easily. C-Corporations can have unlimited numbers of shareholders and different classes of stock. A corporation is a separate legal entity from its shareholders. A corporation has perpetual life, meaning that the corporation will continue to exist regardless of the status of the shareholders of the corporation.
With C-Corporations, the shareholders are separate from management. Shareholders do not take on management responsibilities, and management does not have owner responsibilities.
S-CorporationIn an S-Corporation, the shareholders have the protection of limited liability. The Shareholders liability cannot be greater than the amount they have invested in the business. S-Corporations do not pay taxes on profits and losses at the corporate level. Profits and losses distributed to the shareholders are reported on their individual income taxes.
S Corporations have to ability to change ownership of stocks and add new shareholders relatively easily. An S-Corporation is limited to 100 shareholders. A corporation is a separate legal entity from its shareholders. A corporation has perpetual life, meaning that the corporation will continue to exist regardless of the life or death of the shareholders of the corporation.
With an S-Corporation, shareholders actively engage in management decisions and the daily operations of the business.Corporations are very involved to create. Articles of Incorporation and Bylaws are required. Corporations must obtain an Employee Identification Number from the IRS and provide it to the bank to set up a business account. Corporations have various State and federal filings that are required. Corporations must have at least one shareholder.
General PartnershipIn a General Partnership, all of the partners share equally in the responsibility for the liability of the partnership.Partnerships do not pay taxes on profits and losses at the corporate level. Profits and losses distributed to shareholders are reported on their individual income taxes.
If fifty percent or more of a partnership interest changes hands, the partnership must be dissolved and reformed.Control of the operations of the business structured as a partnership is established in the Partnership Agreement. In a General Partnership, all partners can share equally in the running of the business.
Limited