As a small business owner — whether a sole proprietor or a general partnership — your personal and business credit reports are closely linked in the eyes of financial institutions. Mistakes you make with your business credit will undoubtedly reflect in your personal credit report, which is why you must be vigilant about keeping track of both aspects of your financial situation. Far two many business owners fail to correctly balance their personal and business credit, which can lead to bankruptcy and other problems.
Small business owners must almost always personally guarantee any loans or lines of credit that they take out on behalf of the business. For example, let’s say that you need extra space for storage so you settle to hire a contractor to expand your office building. To fund this renovation, you lift out a business loan from your bank in the amount of $30,000, to be paid back over the next three years. Six months later, however, your business is floundering and you don’t have the cash to meet your obligation to the loan. Would you be surprised to find out that creditors will not only arrive after your business, but also you personally?
Balancing your personal and business credit isn’t difficult as long as you realize that they are inextricably linked. Each time you fail to make a payment on your business credit card, it can be reflected in your personal credit report as will as that of your business. So how do you keep from ruining your financial history in an anxiety to get your start-up business off the ground? All it really takes is a little time and financial management.
Use your personal and business credit cards separately. In order to balance your personal and business credit, you’ll need to keep them separate. When you construct a purchase for your business, make sure to use your business credit card. If you’re going to the grocery store to recall up dinner for the family, however, use your personal credit card. This will make banking — not to mention taxes — much easier to handle, and you’ll be better able to keep track of your cash flow for the business.
Carefully monitor your personal and business credit. There are credit monitoring services that charge a nominal fee each month to keep track of your credit report, which might be a good investment. You can also monitor your credit on your own by ordering copies of your credit reports every six months. This is to ensure that you know exactly what’s going on your personal and business credit reports; if you know, then you won’t have to concern.
Don’t personally guarantee business loans. Although you might not always be able to avoid it, try to stay away from financial lenders who require that you personally guarantee a loan made for business purposes. The better your business credit, the easier this will be, but you should definitely try and find lenders who are willing to give you a loan based on your business name only.
Sell your assets to conceal business loans. If you race into a cash flow problem, you might be left with no option other than to sell some of your assets to cover a business loan. It is vitally important that you meet your financial obligations with regard to your business; if you don’t, you might find yourself without a source for funding, which could mean the end of your entrepreneurial endeavors.
Keep meticulous records. Balancing your personal and business credit means keeping meticulous records. Keep files for both your personal and business financials and update them on a monthly basis. Sustain copies of your credit portray for future reference and don’t hesitate to call creditors if you mediate that their calculations are incorrect. Remember: Identity theft is not only a personal problem, but also an issue for businesses.
Related Posts
Filed under Sole Proprietorship Bankruptcy by on Nov 9th, 2010. Comment. 
Alamo Rent A Car began their journey back in 1974 where they initially started with just four locations in Florida. Their goal was to create a niche market and grow, and they did unbiased that. They were the first of their kind to introduce unlimited free mileage to the car rental industry and focused their attention on leisure travelers who wanted a gargantuan experience at a crude cost. To say this concept worked would be an understatement. The company quickly took off and became one of the country’s largest providers of rental cars.
Throughout the 1980’s, Alamo Rent A Car continued to expand their business and began constructing rental plazas that could quickly and easily serve hundreds of customers every hour. The first rental plaza was constructed in Tampa, FL, in 1982, and the largest was built in Orlando, FL, in 1985, which is home to the world’s largest rental facility. Also in 1985, Alamo decreased the size of their rental agreement to the size of an airline ticket and introduced Instant Alamo which was a program that stored a renter’s personal information. Both of these changes were designed to make the rental process quicker and simpler for the leisure traveler.
During the 1990’s, Alamo Rent A Car made headlines when it introduced three-tiered collision damage waivers. They named them Waiver Savers and they were designed to cater to a renter’s specific insurance needs by giving them different price options and insurance coverage levels. Then again, in 1995, Alamo made headlines as the first of their kind to introduce real-time booking capabilities on the internet. Alamo.com continued to add more and more services to their website in the following years. Some examples include: weather forecasts, driving directions, things to do, Quicksilver membership club, etc. Then, in a surprise move in 1997, Alamo Rent A Car merged with National Car Rental. This was a great strategic move because National had their niche in the business world, and Alamo had theirs in the leisure world. Together, they covered a great spectrum.
Unfortunately, the success didn’t last for long and financial problems emerged in November of 2001 when the corporation filed for bankruptcy. However, the company was determined to get back on their feet and in 2002, Alamo and National began combining their brands at the major airports. In addition, Alamo forged a unique partnership with Disney and became the exclusive rental car company for the Walt Disney World Resort and the Disneyland Resort. Things were once again looking good for them.
Probably the biggest boost to the company came in 2007 when both National Car Rental and Alamo Rent A Car were purchased by the Taylor family. The Taylor family brought together Alamo, National, and Enterprise Rent-A-Car under the same umbrella, Enterprise Holdings Group where all three brands are continuing to see astronomical success. In regards to what’s next for this company, only time will tell.
To date, Alamo Rent A Car has locations throughout the United States, Canada, Europe, Mexico, the Caribbean, Latin America, Australia, and Asia. They operate in over 42 countries and have over 1,000 locations. They also forged an alliance with Europcar creating the largest worldwide car rental network.
To learn more about Alamo Rent A Car, National Car Rental, and Enterprise Rent-A-Car, along with their competitors, please visit: http://www.trix4travel.com/
References
Related Posts
Filed under Sole Proprietorship Bankruptcy by on Nov 2nd, 2010. Comment.
The statue of liberty has an inscription on it that says something to the effect of give us your sick, your tired, your poor. This implies at least to me that America brings a lot of people hope and simply by arriving here in this country that great opportunity awaits anyone that works hard. When immigrants came to places like Ellis Island from economically dormant areas in Europe they viewed the icon that lady liberty and America as a whole as a beacon of prosperity, a land of milk and honey.
This view of America has always been true since our inception in 1776 despite some definite bumps in the road such as the barriers that were put up by issues such as the difficulties presented by the Articles of Confederation, the Great Depression, and the struggles for civil rights for all that we have encountered throughout our centuries as a nation. Through all this plight and unrest America has persevered and in many ways these problems that we have endured have indeed made the nation stronger.
To be perfectly honest though there are some serious tribulations that quiet could use some addressing in this country of ours that need to be confronted. One of these blemishes on our record is some of the gigantic poverty that still exists within our borders, in all pockets of the country. Don’t get me wrong, this is not a utopia and I realize that fact. To put a question to all poverty or even a majority of poverty to be extracted from this country is not realistic in any sense of the word. There will always be poverty to some extent on every corner of this nation.
Let me also go on to say that compared to many of the developed more socialistic nations such as France, England, and definitely communists like Cuba the United States does a far better job of taking care of those who are in the lower income scales, in other words the impoverished. So in no way am I calling for more government run programs, more centralized control over the economy coming from Washington or even any deviation from our recent market-consumer based supply and interrogate system. Looking at a private-public sector partnership that they currently have in Massachusetts order to address the healthcare conundrum may be a road we need to go down.
“The Other America” by Michael Harrington was originally published in 1962. To give a little background information on Harrington himself, some of the organizations that he aligned himself with included the Workers Defense League, the Center for the Study of Democratic Institutions and he was an active member of the Socialist Party of the United States till the day he died in 1987. Obviously Michael was on the fringe of the political spectrum if he was a member of the Socialist Party of the United States in my notion so to say that his viewpoints are “mainstream” theory would be a misnomer and I simply wanted to read this book and report on it in order to net a different perspective on poverty in the United States.
To say the least the statistics, facts, and figures presented in Harrington’s book are outdated and certainly skewed. However, many of the issues that are presented in this text such as the lack of affordable health coverage, the disappearing act that many of our “family farms” are doing, and the inaffordabillity for the elderly to have a secure retirement just to name a few collected ring true today.
Another reason this text was fascinating to me at least as a person with a disability and someone who receives Social Security on a monthly basis I always hear folks who begrudge “ample government” and “wasteful spending on welfare programs”. So it was interesting to get a different angle on whether these safety nets as I like l them really work and either help people survive economically or even help dig them out of poverty. It may have not been the best choice of reading to build because of Harrington’s obviously slanted belief to the left and big government, but his opinion seems like an educated one nonetheless.
“The Other America” also caught the attention of Lyndon Baines Johnson’s Administration and in some people’s eyes was the impetus for Johnson to declare a “War on Poverty.” Some of the agenda that Johnson implemented to help fight this war included Head Start, Medicare, Medicaid, and the creation of the department of Housing and Urban Development in order to produce housing more affordable for all Americans.
Harrington was actually brought in to be a part of a task force headed by Maria Shriver’s father in the 1960’s to postulate ideas on how to combat poverty. Harrington’s book albeit maybe a gigantic of an exaggeration or questionable in some areas of research at least gave Johnson and his economic advisers some numbers to discover at so they could at least get a feel for what they were dealing with.
Harrington makes the claim that at the time when he wrote this book there were 40 to 50 million citizens who live on this land. “They were bad and they still are.” (Harrington pg. 1) at the reprint of this in 1971. Now I detest to be a negative nelly and go after the first statistic he puts in here, but I think that number is somewhat misleading. The author himself later admits “I have been looking for stagnation and retrogression.” (Harrington pg. 175) The point that I am trying to produce is that data can and usually is manipulated to fit a certain point of view depending on the project and the prerogative of the writer. For me to question the veracity of Harrington’s research would be foolish on my fragment because I basically know nothing about conducting field research. The part that makes the most sense about the forty to fifty million people living in poverty at that time is that they have no standing within our society, no yelp within the political arena or community at all. Too often those in high places speak about the bad as if they understand, but it is no more then hollow rhetoric.
Harrington takes a compassionate and on the surface reasoned near to things like combating the lack of quality housing developments in America. He is highly critical of the approach of the government in 1949 when Republicans and Democrats came to the negotiating table and drew up a compromise in order to address the pressing issue of public housing. Conservative minded Senators like Bob Taft realized that there was an immense shortage of housing in the country, but the truth is no legislative undertaking in the history of all governments is perfect. There needs to be compromise when drafting a bill and a substantial part of that compromise had to deal with the restraints that the budgeting process can place on a project.
So when Taft and other budget hawks fell “100,000″ (Harrington pg. 34) short of their modern goal of houses built. Harrington however, forgets that money just doesn’t appear out of thin air and he is highly critical of people like Taft for showing some fiscal restraint. When President Kennedy vows to take up the project some twelve years later in 1961 and still falls short of Harrington’s expectations Harrington also speaks poorly of John Kennedy. This criticism is also unwarranted in my book because Kennedy had a lot on his plate following foreign affairs and trying to dig the country out of an economic recession.
Harrington unbiased simply takes the approach that if you give the poor housing this must mean that they will automatically take superb care of it and there will be no more slums in America. Let’s be perfectly just here, I contemplate we all know that most poor in America are often segregated from the more affluent people. What this means is that the awful live by one another and often times a kid growing up in that situation all they are going to see is struggle and strife. If that’s all the person sees in their life often times it’s hard to know how to get out of it. Poverty is cyclical, and for some it runs within a never ending cycle.
This all means that if your parents lived in a run-down old house, you are likely to live in a run down old house unless you are granted greater opportunity and take advantage of it through the educational process. I’m not taking a shot at the poor I’m simply making an observation upon human nature that we live what we know and peep.
Harrington opines and describes the different forms of poverty, he goes more in depth then I will because it seems easier to explain my blueprint. There are two kinds of poverty from a territorial standpoint in my view. There is island poverty which means that there is poverty in determined sections of a large city or area, but it’s pretty much condensed as far as its level of severity. Let’s take the District of Columbia as an example, there are droves of homeless people just mere feet away from the White House and they’ve been for decades on end.
If someone were to move just a few miles to say Northern Virginia you are going to find one of the most diverse and vibrant economies in the country with biotechnological research companies like VA Biotech (Flagg pg. 2) stationed there and computer companies like International Business Machine (Zucker pg. 4) also with its headquarters based out of there. The schools in Northern Virginia are spectacular and you’ll run into some very opulent housing. This is an example of island poverty to me. Where there is immense poverty in certain sections of a land mass, but the entire dwelling is not stricken with the complication. I guess you could say that Washington D.C. (the inner city especially) is on an island all to itself.
Then there is abject poverty which poisons an entire region for generations on end. The constituency that Harrington uses as an example that has been hemorrhaging jobs for generations is Appalachia, up there in the West Virginia-Eastern Kentucky zone of the nation. “Beauty can be a mask for ugliness.” (Harrington pg. 40) This is how Harrington describes the Appalachians. As people drive through and see all the beautiful scenery, say if they were on their vacation. The people out for stroll enjoying the backdrop and beautiful vista that the Appalachians can provide in spring or fall especially are completely oblivious to the struggle that the people living there have to work through. He then goes on to imply unjustly that most of these vacationers are care-free about the troubles of the unpleasant and fair want some pretty pictures along their journey.
He goes on to mention the “1,500,000 people who left the area during the decade of the 1950′”. (Harrington pg. 41) Harrington then goes into different reasons why people end up living in poverty. He talks about mental illness and how that could lead someone into unpredictability within the job market. This seems to me at least to be a rather obvious point given that if someone is suffering from a psychological ailment that they would potentially be less dependable as far as showing up to work or being able to do the job efficiently.
Then Harrington talks about how people who abuse alcohol would find themselves down at the shelter where he exercise to work because they often couldn’t keep their houses due to all the debt they’d accumulated from years of drinking. Obviously if your alcoholism gets bad enough to the point where you race into that much debt it must also inhibit you from maintaining a job and a decent standard of living. So although I have empathy for the drunks and the mentally impaired I think it is not surprising that these groups of people are living in poverty, not only wait on in the 1960’s and 1970’s, but also today.
One of the most intriguing issues that we deal with today is immigration, migrant workers, and the proliferation of corporate farms. When consumers in the United States spend an “average of 20 percent less of their income on food than any other nation in the world” (Harrington pg. 39) back then just imagine the abundance of food and the speed at which it can be produced nowadays through the use of mechanization. Of course with this industrialization and need for increased efficiency and profit margins there is a downside. Many of the smaller farmers are being forced off their land because they are unable to find a reasonable enough price for their cut.
These farmers are people who were raised on farming; they lack any other usable skill within this industrialized society, so thus they go from a farmer who makes a decent living to someone who becomes another number for the Department of Labor to put in a chart as living under the poverty line. Then with the integration of major free trade agreements into today’s economy such as the North American Free Trade Agreement farmers now have to also compete with overseas markets and once again they are unable to because of the extremely cheap labor in Mexico. I am not saying that free trade is a bad thing especially from a consumer point of opinion, but if you look at the socioeconomic it can have on both countries from a labor-manufacturing standpoint free trade is usually a negative.
The other side of this coin is of course the struggle of the migrant worker. Now you can debate on whether illegal immigrants should or shouldn’t be allowed in this country to perform even the most menial tasks at pathetic wages. There are reasonable compassionate people on both sides of that issue, but the one fact that no one can deny is the fact that yes, even illegal immigrants are human beings who should not have their human rights violated. Harrington believes the immigrants should have the right to unionize, but then basically admits that these workers are too nomadic in their lifestyle in order to build a sustainable worker’s rights program. Harrington basically is quite notable of American Federation of Labor-Congress of Industrial Organizations for not doing more to organize, but for Harrington to attack them is like punching your best friend as they try and help you out of a scrum in my opinion so I’m not quite sure why he so harshly critiques them.
Yes, there are a bunch unfavorable organized labor bosses, but sometimes you’ve got to slash deals with the devil so to speak to get where you want to go in life. However, Harrington once again sort of gives off the impression of naivety by basically saying if the unions just got their act together and played nice (as if that ever would happen) everything would be worthy better. Obviously also from a sociological aspect Harrington certainly employs a class conflict, semi-Marxist point of view by basically ridiculing America’s wealthy for not showing more compassion for the lower classes. In fact the class that Harrington focuses on most in the book is the underclass, those who cannot catch the means to afford the basic necessities of life. You could of course draw the comparison between Harrington and Marx and how Harrington also looks at the burgeroise with disdain and considers himself a champion of the proletariat as they fend off assaults on their way of life.
Harrington also goes into detail of the struggle of the elderly to survive in this society. This is a tussle that is discussed quite extensively by any sociologist worth their salt, no matter their philosophy on whether we as a nation have a responsibility to take care of our aging members. It does seem a little draconian to me to not want to help the people who left us with such a sizable country filled with so many opportunities. Harrington basically argues that we need to expand Social Security and increase benefits for folks who he says are in their “golden years.” Of course this was the late sixties through the seventies when he was espousing the ideas and we’ve reach to realize that with people living longer due to medical advances Social Security is on a collision course with bankruptcy without some reform. So, due to this expansion of benefits for anyone doesn’t seem plausible and many people should fair feel lucky for whatever pecuniary help they currently receive.
Even if Social Security were to open to default in a sense and lose some if not all of its solvency most mainstream social scientists and economists would agree that it certainly did help a lot of the elderly out of poverty to some extent, by giving them at least something to fall back on. According to many sources the poverty rate amongst those sixty five and older dropped somewhere near forty percent when Social Security was first implemented back in the 1930’s. This means that the poverty rate Harrington then goes on to argue that the elderly struggle financially through their golden years because they don’t accumulate out and socialize enough, build social contacts or “social capital” (Putnam pg. 15) as many sociologists like Robert D. Putnam put it.
They would use this social capital in order to build connections in order to stay out in the job market to supplement their income with. Although I also conclude that many of the elderly are somewhat secluded from the rest of the world, that’s simply not as true as Harrington makes it out to be. If you really think about it, it’s the elderly those who Tom Brokaw called “The Greatest Generation” who attend church services more regularly then those in their youth. To highlight the generational gap and to see if Harrington’s argument of reclusion holds up decades later we have to look at more recent data. According to the data level-headed by Robert Putnam in 2000 the weekly church attendance among high schoolers “has dropped from fifty two percent in the 1970’s (when Harrington was relevant) to forty percent as of 1999.” (Putnam pg. 75) In incompatibility church going amongst the elderly has only dropped five percentage points according to an aggregate percentage of surveys.
I’m not saying that church is the only social function that the elderly go to and since they go to church they must not be impoverished, but to say there is a growing disconnect between society and the elderly like Harrington says isn’t exactly suitable. In fact if you think about at least according to the data offered by Putnam it shows that the younger generation may have trouble digging their way out of a tough financial stretch if they don’t go to church and do those social networks.
Really, you can’t excuse Americans of not caring about the elderly either. Despite the fact that the sociology textbook basically implies that the more industrial a country gets the more it scorns the elderly. In some respects, this is true however America is a very giving group of people. This is a fact that Harrington of course conveniently for his hold argument to sound better. Well, as a polemic if you will I offer up the fact that “per capita income has risen seventy four percent in the United States since 1961″ (Putnam pg. 156) During this time our philanthropic efforts are still way ahead of the rest of the world so any perceived drop-off in charitable giving complained about by Harrington is basically invisible.
The next closest country in generosity would be some country in Europe. I know many countries probably deem so many here in America are greedy, slovenly, etc. Well, just sight at the billions Americans offered up in response to the tsunami in the Thailand-Southeast Asia status of the world.
To put it lightly I judge Americans are well aware of poverty. Far more aware then folks like Harrington give us credit for. Maybe incidents like Hurricane Katrina kind of woke us up and we will be more alert of the plight of others, but overall we do a pretty good job in my thought. Maybe the fact that Americans gave so noteworthy money to things like the tsunami and earthquake relief in Pakistan while people of all political viewed dropped the ball when it came to the response to the incident in Fresh Orleans shows that maybe we don’t pay enough attention to our maintain country and too much to the affairs of others. That’s unprejudiced one point of thought and I think that is pretty much all Harrington offers up when it comes to his book “The Other America” is honest one point of view and numbers can be shuffled around neatly in order to fit that perspective.
Works Cited
Flagg, Michael, and Michael S. Rosewald. “Va. Biotech Looks to Md. For Inspiration.” Washington Post 2 Dec. 2004, natl ed., sec. C: E01.
Harrington, Michael. The Other America: Poverty in the United States. 1962. 2nd ed. New York: MacMillan Publishing, 1971.
Putnam, Robert D. Bowling Alone. New York: Simon & Shuster, 2000.
Zucker, J., A. Demaid, and S. Ogden. “Access Enhancement Objects for data management in Smalltalk.” Computer Languages, Systems & Structures; 32.4 (Dec. 2005): 195-202.
Additional Resources
Flagg, Michael, and Michael S. Rosewald. “Va. Biotech Looks to Md. For Inspiration.” Washington Post 2 Dec. 2004, natl e
Related Posts
Filed under Sole Proprietorship Bankruptcy by on Oct 27th, 2010. Comment.
The limited liability company or LLC, as it is commonly called, is a relative newcomer to the business arena, originating in the 1970’s in Wyoming and spreading throughout the United States in various guises during the 1990s. Frequently misidentified as a limited liability corporation, the LLC is a morphed creature that combines some of the features of sole proprietorship, partnerships and traditional corporations. As such, it came into creation with the intention of providing the most gracious features of prior business structures and making them available in one package.
As America becomes increasingly litigious (Fulbright), it has become frightening, if not downright unwise, to conduct many businesses as a sole proprietor or simple partnership. Ways of doing business that served society for decades if not centuries have fallen by the wayside. As tax, business, employment and general liability laws have become more and more complex, it has become apparent that almost anyone involved in the ownership of a business needs to protect his or her personal assets from lawsuits. As a sole proprietor, the owner IS essentially the business – should credit or legal problems arise, the owner’s home, personal vehicles, bank accounts and any other personal assets are on the table. Likewise, members of general partnerships are vulnerable, even if it is through no fault of their own. It became apparent to most that it is necessary to protect one’s personal and family assets from any threat from business liabilities. Without protection, one lawsuit can otherwise devastate the lifestyle of an entire family.
Prior to the emergence of the LLC, the only tried and true way to accomplish the necessary protection was to incorporate. This can be an expensive and cumbersome process, both to set aside and to maintain. It simply was not practical for many smaller enterprises and was entirely impossible for a single business operator to do alone. Traditional corporations are subject to complex regulations that vary from position to state. The setup process is not easy without an attorney to handle the moral documentation. Corporations must have more than one member, have a limit on the total number of members, appoint officers, deal with distribution of shares and a myriad of other issues that generally don’t apply to dinky operations. In addition, after inception, there must be copious record-keeping, annual meetings, minutes kept, and adherence to complex tax codes. Corporations must deal with quarterly tax reporting, just one residence that can be intimidating to anyone other than a tax professional. Along with just this one item can come interest and penalties from one mistake or economic downturn that leads to a missed payment – costs that can put a marginal operation or “Mom and Pop” out of business before it even becomes established.
Additionally, corporations are essentially subject to double taxation. The corporation itself, as a legal entity in its own right, is subject to corporate income tax. Profits distributed to shareholders are again taxed on those parties’ individual income returns. This is not generally a viable option for tightly held, smaller businesses where a limited number of members are simply attempting to make a living from their business. A solution had to be developed between the raw vulnerability of going it alone and the often complicated operation of a corporation – otherwise small enterprise would likely have become primitive.
Enter the limited liability company. It offers mighty of the personal asset protection of a traditional corporation, can have anywhere from a single member (a single member LLC or SMLLC in common parlance) to an unlimited number. These members can be individuals, may be corporations, other LLCs and can even include international members, a perk disallowed for faded corporations. Unlike a sole proprietorship, the personal assets of someone with a SMLLC are generally afforded decent protection, though less than those involving at least two members. Unlike a traditional partnership, an LLC not only protects assets but affords the members the moral to determine how any profits are distributed. Profits are not subject to the standard fifty-fifty split, nor are they attributed according to how much a party has invested in the company. Members determine among themselves the graceful division and the consume of profits. Thus, a member may have entered with a minimal monetary investment but may be compensated at a substantially higher level due to the services they provide. Since there are no shareholders or other outside controls, members are free to distribute as they agree and glimpse fit or even not to make any distributions at all but to reinvest any available moneys back into the business. This freedom can be very engaging, particularly to a small group that is generally in accord as to business methods and goals.
Creators of an LLC are not petite to any plot management structure or the selection of officers. Such a company can be managed by one or more of the members or can be manager managed, where someone is hired to handle day to day functions of business. The level of activity of the members is generally up to their discretion when they agree to execute the company. Some may choose to be essentially just investors while others may play a more active role. In general, profits are distributed as agreed upon and subject to taxation via a pass through process. Distributions are thus not taxed at the entity level as with a corporation but are instead taxed only once as self-employment income by the member or members receiving the income. (As such, it is distinguished to impress that this income is subject to self-employment tax, currently over 15% at the federal level. In addition, if a member is not active in the LLC, any passive losses from the LLC cannot be used on his or her federal tax return to offset other income.)
Again though, the LLC offers a benefit not available to the sole proprietor or partner. Self-employment tax may be reduced by making distributions in the form of a salary to a member or members. The IRS allows for this practice of conveying profits as long as such salaries are not inflated to a point where they appear to be tax avoidance. Salaries must agree with was the IRS deems to be a fair market salary for a given position. If it doesn’t match the industry standards, the IRS will shift the perceived excess in salary and tax it as self-employment income at the higher rate, likely generating a bill for the filer (IRS).
LLCs offer some additional flexibility in taxation as they are not recognized as a specific tax classification. The option is sometimes available to forgo the pass-through system where the LLC is treated like a partnership and opt for taxation as an S corporation. In the case of SMLLCs, there are also variances from the norm for tax purposes. Unless the appropriate create is filed, the IRS will treat income as it would that of a sole proprietorship. Per the IRS:
“An LLC that is not automatically classified as a corporation can file Form 8832 to elect their business entity classification. A business with at least 2 members can choose to be classified as an association taxable as a corporation or a partnership, and a business entity with a single member can choose to be classified as either an association taxable as a corporation or disregarded as an entity separate from its owner, a “disregarded entity.” Form 8832 is also filed to change the LLC’s classification.”
Additionally, the SMLLC may have less to offer in terms of asset protection than a multi-member LLC. As there are no other members to suffer wound, the SMLLC is more vulnerable to adverse action by creditors. Particularly, if the single member defaults on personal debts and is successfully sued or attempts to declare personal bankruptcy, the courts may quite likely conclude that the SMLLC really more of a sole proprietorship. The owner-member may then find himself forced to liquidate the assets of his SMLLC to pay personal debts. This is normally done via a charging order giving the creditor interest in these assets or an extreme case can cause a complete foreclosure. Worse perhaps, a person with impending adverse judgments or bankruptcy procedings who inexplicably transfers personal assets into a SMLLC may catch himself facing charges of fraudulent conversion, have his transactions reversed and be prosecuted.
With a multi-member LLC, a charging order can be rendered virtually worthless fairly easily in many cases, discouraging a member’s personal creditors from even attempting to acquire one. Unlike shares in a corporation that can be treated as personal assets and seized, giving the creditor a voting interest and perhaps even control of a corporation, a carefully structured LLC can make a member’s interest an exact liability to a creditor. As the organization allows members to decide how, if and when profits are distributed, a creditor may find that no distributions are made. The effected member may continue to receive income via a salary or wages that are not subject to the charging order or he may be granted loans from the company. Thus, a charging order may give a creditor an interest in one member’s section, but grants no means to perforate the company structure and gain influence on distribution. If a distribution is not made to the member so attached, the creditor can secure himself in the inverse position of owing taxes on money he never receives. This can obviously act as a strong deterrent to creditors. Additionally, a carefully constructed operating agreement can contain provisions for the removal of an individual member subject to credit issues, thereby closing the hole and keeping the LLC entirely untouchable.
The establishment of an LLC, be it for asset protection or for the cache’ of appearing to the public as a well established and reputable business, is relatively simple. Aside from choosing members, selecting a name that is dissimilar from any other registered business and generally containing letters (LLC or LC) that publically identify it as an LLC, the requirements generally boil down to filing notice with the proper state agency and paying a fee. States vary in whether the names of all members are disclosed or whether only a designated agent for legal service is required. Some allow a representative company to act as an agent. It is generally necessary to station a time frame for the existence of the LLC and indicate what the business type may be. There are periodic fees and renewals that vary by state. Beyond that, the real meat and potatoes of an LLC is contained in the operating agreement.
The operating agreement, while not necessarily filed with the state, is absolutely vital. It is crucial to ward off any future problems in many areas. For starters, it is indispensable should any documentation ever need to be produced to parties outside of the company to validate that the LLC is a legitimate, honest business that exists separately from its individual members. It also needs to be carefully crafted to deal any internal difficulties. It needs to spell out at the very least the methods for decision making among members and what happens if a member dies or leaves the company (without these clauses, an LLC will dissolve in one of these events). It should identify the members and their initial investment and percent interest. All should sign and receive copies.
Once this documentation is in place, there are additional steps that should be followed. Foremost among these is likely to be the establishment of a business bank record or accounts, as it imperative to keep business transactions separate from personal ones to reduce liability. For the same reason, it is not desirable for any member to personally guarantee any accounts, lines of credit or loans. A federal employer identification number should be secured (IRS) and used instead of individual social security numbers. While the LLC may not be required by the state to enjoy annual meetings, preserve minutes, etc., it is still significant that good business records be kept. Aside from any potential issues with the IRS, accurate record-keeping can only serve to maximize the protection of assets afforded by the formation of the LLC in the first location. In the event of any legal challenge, the LLC must be above reproach.
As a relatively new business entity, the rights and parameters of LLCs are still evolving. There is not yet an aged, established body of legal precedents and judicial interpretation to guide attorneys and the courts. As the government will no doubt try to close loopholes for its own economic attend, as lawsuits proliferate in America, and as creditors continue to aggressively pursue debtors in a down-turned economy, both attorneys and the LLC members whom they advise must keep abreast of changes in the wind and be prepared to turn sails accordingly. Just as the corporate cover has been and can be pierced, LLCs will no doubt prove to be no less bulletproof as case law continues to develop.
(This article is for information and entertainment purposes only and does not constitute legal advice. Please direct legal questions to your attorney.)
Sources:
“Forming a Limited Liability Company (LLC) – www.irs.gov
“Understanding Your EIN” – www.irs.gov
LLC Basics” – www.nolo.com/legal-encyclopedia
“Fulbright’s 6th Annual Litigation Trends Survey Report” – www.fulbright.com
“Overview of How an LLC Protects your Personal Assets” – www.assetprotectionattorneys.com
Related Posts
Filed under Sole Proprietorship Bankruptcy by on Oct 16th, 2010. Comment.
As we said earlier, a joint venture is not an entity, but the reason for the entity. A joint venture can be individuals, corporations, LLCs or even limited partnerships. There are tax advantages to all of these types of holdings. How you should hold your joint venture depends upon the size of the project and how long you plan to be involved in the project.
Corporation
A corporation is a separate entity. It can open a bank account, pay taxes and go bankrupt. Because a corporation is its own entity, it is the safest way to start a business. By funneling everything into the corporation, you limit the liability of the other parties.
Two corporations or other types of business can form another corporation. A corporation will need people, however, to be officers of the entity. You also need a registered agent. The registered agent is usually the attorney who fills out the articles of incorporation and will support up with the annual reports.
There are two types of corporations – a C corporation and an S corporation. You will most likely charter your joint venture under an S charter in that you will not be selling stocks. An S corporation, or a Sub S, as it is often called, is limited to the number of shares of stock it can issue. An S corporation can only issue 100 shares of stock.
The stockholders are the real power in the corporation. The stockholders do not have to be the same people who are officers of the corporation. They can be businesses or individuals. Their ownership of the corporation is not made public – the officers and registered agent are public information.
A corporation has tax benefits that are not afforded to individuals. That and the fact that by putting everything into a corporation puts a limit on the liability of those keen in the corporation makes it an attractive entity to believe when you are considering how to beget a joint venture.
LLC
An LLC is a limited liability company. Like a corporation, you have to file the LLC with the state. The filing fees are usually higher for an LLC, but this type of company offers the same protection as a corporation in that it is its possess entity, but without the cumbersome paperwork that is keen in maintaining a corporation. A corporation is obligated to have regular meetings and keep minutes of the meetings. An LLC does not have the same obligation and is an easier type of entity to maintain. Because it gets the same type of tax breaks and offers the principals the same protection as a corporation, this type of entity is often preferred over a Sub S corporation. You cannot sell stock in an LLC.
Limited Partnership
Some people confuse a limited partnership with a joint venture. A tiny partnership is an entity between two or more individuals for no specified period of time or for a particular project. A joint venture is similar to a limited partnership in that it is a legally binding agreement between two or more individuals, but whereas the limited partnership is not limited to a specific project or endeavor, the joint venture is. And the joint venture can be comprised of many different types of entities.
Sole proprietorship
You can plot up shop and start up your own business as a sole proprietor without having to file any paperwork with the state or even talk to an attorney. The free enterprise system allows anyone to just open a business as a sole proprietor. You will have to claim income taxes on this business, but can do so on your individual income tax statement. You will have to file a Schedule C for a sole proprietor business. You can enter into a joint venture as a sole proprietor, but be aware that you are offered no personal protection. If the joint venture files bankruptcy, you may be also finding yourself in bankruptcy court. The same goes if the joint venture is sued. If you gain your business as a sole proprietor, you will want to make sure that the joint venture is held in a protective entity such as a corporation or LLC.
If the joint venture is held as a sole proprietorship, then any liability for the joint venture will fall upon the entities or individuals that make up the joint venture.
Individual ownership
If you are not worried about liability and are in a small joint venture with another individual, you can each take ownership of anything in the joint venture as individuals. If, for example, you form a joint venture with someone to purchase a foreclosed house, you can each select ownership of the property as tenants in common. Any assets that the joint venture owns should be held by each of you as tenants in current.
Prior to joint ventures, corporations, limited partnerships and LLCs, it was not unusual for people in business with one another to manage their business by making sure that all assets and liabilities were held as tenants in common. Tenants in common means that both parties are owners of the asset. Unlike joint tenants, when property or other assets is held as tenants in common, and one of the tenants dies, the heirs of the deceased party will be entitled to their share of the assets. With joint tenancy, the other partner would be able to claim the assets as their own.
Before our society became so litigious, it was not unusual for parties to strike out a verbal agreement and hold assets and property as tenants in common. Today, however, you are better off to gain the protection of a protective entity such as a corporation, limited partnership or LLC when you are entering the business world.
Related Posts
Filed under Partnership Bankruptcy by on Aug 18th, 2010. Comment.