You Decide

To: Penelope, Mark, and John

From:

Date: 10/12/14

Subject: Entity Selection

Facts: After 20+ years of working for other firms, Penelope (enrolled agent, age 41), Mark (CPA, age 43), and John (CVA, age 65) want to leave the firms they are currently employed by and become their own bosses. Penelope specializes in taxes, Mark is the auditor, and John is a business valuation expert.

There are so many options available as to how they can structure the new business. The appropriate business entity for any individual(s) will depend on their particular facts and circumstances.

You are a valued colleague and friend of this threesome, and they have come to you seeking advice as to how to structure their new business. They have the knowledge to figure it out for themselves but are looking for the advice of an unbiased third party. Please consider the following tax and nontax considerations as you recommend an entity choice to Penelope, Mark, and John.

Part I: Discuss the various forms of organization that are available to Penelope, Mark, and John.

Penelope, John and Marc, you have come to me to give you advice on choosing what type of business structure for your new business, and the tax and nontax benefits that comes with it. The decision to start your business is a huge one, and you need to know all the options you have before you. I will be discussing these options with you in this memo, starting what the various organizations you have to choose from. Not only will we look at the different entities; but what tax and nontax options you have as well.

The three of you are coming together to form a partnership, which is one of the entities that is an option. In a partnership, you each own your own assets and are responsible for all liabilities. A partnership advantage is it’s easy to start up and have the ability to get more capital, great borrowing capacity, and it’s easier to transition it to other form of businesses. Disadvantages are that all debt and...