Tag Archives: partner

Business Basics: Professional Corporations

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Welcome to our weekly business basics post! This week we decided to explore a specialized legal entity called a professional corporation (PC). Now most of those who know a little bit about corporate law probably know that there are two, main types of corporations – S-Corps, and C-Corps. But in addition to these, there are a few other specialized structures that are important to keep under the belt of a small business, like the professional corporation.

So what is a professional corporation?

Like with a regular corporation, converting a sole proprietorship or a partnership into a professional corporation turns the business into its own, separate legal entity. However, unlike a regular corporation, the owner of a business being turned into a professional corporation must be licensed to offer a specialized professional service. In other words, the owner of the would-be PC has to be a doctor, or lawyer, or accountant, or architect; some sort of licensed profession.

Why would someone choose to form a professional corp?

Like a standard corporation, a professional corporation provides a certain amount of protection for the business owner, or owners, as a PC can carry its own debt and liabilities. It is important to note that a PC does not protect an owner from being sued as a result of their own negligence – a doctor that turns his or her practice into a PC, for example, can still be sued for malpractice. But if two doctors act as partners within a practice, forming a professional corporation can help protect one doctor from being liable for any judgement received from a lawsuit against the other doctor. So without that protection, one of the partners could be held accountable for the mistakes of the other one. Professional corporations, then, are very useful for any licensed professional running a practice with another licensed professional.

What do I have to do to form a professional corp?

First, you must be licensed to provide whatever service your practice offers in the state you do business in. Most states will want to see proof of relevant licensure at the time of incorporation, and the state licensing board will likely have to approve your articles of incorporation before you can move forward. Usually the licensing board will ask that the articles of incorporation bear special language and, depending on the state, PCs occasionally have to contend with certain laws after they are formed – for example many states ask that a professional corporation designate itself as such by including ‘PC’ or ‘Professional Corporation’ in the name of the practice.

Professional corporations take a bit more effort to form, but are extremely useful for practices run by two or more licensed professionals. After all, the last thing you want is to have to pay lawsuit that resulted from the negligence of your partner. And, like other corporations, a PC offers some protection from debtors looking to collect on a business’s liabilities. It is important, however, to check with your secretary of state and your state’s licensing board to clarify what, exactly, you must do to form a professional corporation and what special provisions you will have to contend with as a licensed PC.

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How Much Capital Do You Need to Start Your Company?

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The process of starting a business is usually associated with that of accumulating large sums for start-up capital and marketing campaigns. Businesses have now moved away from that sort of thinking and have found easier and more innovative ways to get their companies up and running without having to find an outrageous sum of money. This calls for a total change in the mindset of the budding entrepreneur and a level of commitment to the process.

Starting a Business with Zero Capital

This will be a challenging task with many hurdles to jump, but once you are dedicated to the process you will make it. Here are a few tips.

1. Seek a Partner

Partnerships offer a great means of starting a business. Once you find someone who shares your passion and enthusiasm to become your own boss, then you have covered the first base. If you are really serious about finding someone who shares your vision and is willing to put his/her shoulder to the wheel and help build the business, you must be prepared to treat them like a partner and not a hired hand. If you pay someone for an hour, they will give you your money’s worth, but a partner takes the job more seriously.

2. Start Your Business from Home – Eliminate Expenses

You do not want to start your business with expenses hanging over your head, so eliminate those expenses. Start your business from home to avoid the cost of rent. If you’ve found someone to work with as a partner, then you should both start off doing all the work instead of hiring workers. Work it that way until you reach some point of profitability or some transitional point in the business (expansion) that would require added hands.

3. Get a Business Website Going

Depending on the nature of the business, you could start off with a business website. If the business idea does not require a brick and mortar building, then your first option should be a business website. If you do have a brick and mortar, then you can still have a website up and running in a short time. A good domain name is essential to your online presence, so you would want to spend some quality time selecting one. You can still get a good domain name without spending hefty sums. A free site from WordPress or Tumblr will also be a good starting point. You can start advertising your business through blogs or use the social media platforms, and they are all free.

4. Free Legal Advice and Incorporating Your Company

There are lawyers who offer free services, so you can get legal advice and documents that you can modify to suit your business needs. Incorporating your company may have to wait until you start earning, but until then you can register your company as a LLC, which may be the best business structure for now. You can also go through with the IRS procedure as well.

Jack Harding is a business consultant. He enjoys consulting upstarts and blogging about his insights on various business blogs. Visit Wish.co.uk to see how this upstart utilizes fun marketing to maximize its customer reach.

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Guest Post: 3 Key Elements To A Startup Partnership Agreement

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If you’re running a small start-up business with a partner, chances are this partner is a good friend, a colleague you trust or maybe even your spouse.

During the early phases of a start-up it is even more so important to put everything in writing. You are laying the foundations to what may hopefully grow into a solid corporation. Many will feel the relationship with the chosen partner is strong enough to withstand any potential disagreement.

If the relationship is strong enough to choose to build a partnership upon, then it should be strong enough to weather through any disagreements. But by putting the basis of this relationship in writing can help avoid many future arguments. Weathering through storms of discords will not only strengthen the partnership but the company as well. Think of it this way: an argument will force you to be creative in finding solutions, and these solutions just may be a new way of thinking or doing things thus solidly improving your product and service.

The very basic and rudimentary components to a partnership agreement can be summed up in these three bullet points:

1. Define the nature of your contribution
What will you and your partner be doing in terms of labor and time consumption? What are you both bringing to the table in terms of initial investment is it a financial contribution or are you providing land, infrastructures or machinery? If your contribution is to provide the warehouse for your storage needs because you happen to have the facility, then what if your company grows and you suddenly need to double the space? Who will provide this? Be sure to be able to answer all of these questions when collaborating together.

2. Establish the value of your contribution
This is the make it or break it part of the agreement. Think long term. Establish time frames and deadlines. Your contract can even stipulate annual or bi-annual revisions. Most importantly, think about how you will feel five or ten years down the road if you’re the primary contributor and the shares are split evenly. Wanting to change the nature of an agreement after years of operation can mean the end of your company.

3. Determine how a partner can terminate the agreement
How can you end this agreement? What will you get from termination? Will the company go on without one of its key partners? Who owns the trademarks, and what if owner is the one to go, or worse yet passes away?

We did the research and found the following links to be the most helpful for small businesses looking for more information on partnership contracts:

1. Business-In-A-Box offers a simple template for creating a Business Partnership Agreement.
2. Docracy offers a wide variety of contracts that are sure to meet the majority of your contractual needs.
3. Printable Contracts is a very rudimentary site without the bells and whistles in high tech design but the focus on the content makes it easy to find templates and samples.
4. Wiki-How walks you through a step-by-step process to write your own contract, because sometimes a template just won’t do!

Marie Lapointe is a San Diego based freelance writer and writes for MacGregor & Collins, LLP.

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Partnership 101

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For the last installment in our series on the tax treatment of entity types we’re going to cover the Partnership. If you’ve been keeping up with our posts, this will seem eerily familiar. Why? Because the LLC is typically treated just like a Partnership!

The four considerations we’ve been covering are:

  1. Pass through of gains
  2. Pass through of losses
  3. Transfer of assets to the entity, and
  4. Transfer of assets from the entity

Today we will cover the Partnership. Before we get into the four considerations, it is important to discuss the legal treatment of a Partnership. A Partnership is simply an agreement between two or more people who share an interest in the same business. From a legal standpoint, courts will rely on any agreement, formal or not. Two people merely splitting costs and sharing profits in a venture is enough. Typically, this isn’t an issue, until it is. Additionally, a Partnership does not provide any liability protection. For more information on limiting liability, see here.

As for the tax considerations;

1. Pass through of gains

The default treatment of a Partnership passes gains through to a shareholder’s personal income statement. With a Partnership, there is no entity- only partners. All profits and losses of the Partnership are passed directly to the partners. This can mean that even when no profits are paid out to the partners, the partners are still personally liable for their share of the taxes on those profits (this is true of the LLC as well). A member of an LLC or a Partnership can contract with the other members as to how the gains are allocated and distributed to the shareholders.

2. Pass through of losses

Again, the default treatment of a Partnership is to pass through any losses to a shareholder’s personal income statement. Losses can be allocated according to the terms of the Partnership.

3. Transfer of assets to the entity

The transfer of assets to a Partnership is not a taxable event, regardless of the amount of control owned by the partner transferring the assets. This could potentially make starting your new company less expensive than with other entity types, especially when there are multiple shareholders. While a Partnership is easy to form, and can easily be given assets, it does not protect the partners from limited liability.

4. Transfer of assets from the entity to partners

When a Partnership decides to transfer assets to a partner, this event is not usually taxable. Either upon distribution or liquidation a partner is responsible for the taxes, if any have even arisen.

Overall, a Partnership is a tax efficient way to get your company started, but lacks the limited liability of other entity choices. In most cases there will not be a tax on transferring assets to and from the company. There is also no double taxation of profits, thus saving the shareholders money. Additionally, if there is a loss, a partner may benefit from a tax reduction.

A Partnership is an easy way to setup a business and has beneficial tax treatment, but does not have the benefit of limited liability. If you’re considering a Partnership, also consider an LLC. They have very similar tax treatment, and only a few formal requirements to set up! Learn more here.

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