Business Start-Ups: Which Entity is Best

DetroitSkylineI’ve been reading Steven B. Gorin’s massive “book” (he calls the 1053 page PDF a “mere compilation of preliminary ideas”) titled Structuring Ownership of Privately Owned Businesses: Taxation and Estate Planning Implications. I’ve yet to do a deep dive–again, it’s 1053 pages of very dense, complicated reading–but I will. And I will because it’s chock full of crystal clear nuggets like this:

“I freely admit to a bias in favor of partnerships . . . Generally, a business with an uncertain future (as is the case of most start-ups) should start as an LLC taxed as a sole proprietorship or partnership . . . Start-up businesses often lose money initially, and an LLC taxed as a sole proprietorship or partnership facilitate loss deductions better than other entities.” (pp. 76, 78)

Okay, sounds good to me, but what if my plan is to take that start-up public down the road? Gorin might respond (he actually did say this, but not in response to that exact question):

“Suppose that one concludes that a C corporation would be ideal. Starting with an LLC taxed as a partnership and then converting to a C corporation the earlier of five years before a sale is anticipated or shortly before its gross assets reach $50 million might be the most tax-efficient approach.” (p. 78)

So there you have it, the advice of one of the top estate and business planning attorneys in the U.S. on where to begin with your start-up. Of course, every case is different, so don’t take his advice to the bank just yet. Consider all your options, talk with your attorney and a good CPA, but I’m thinking Gorin is probably right.

 

 

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