Is Your Business Properly Structured?

To date, according to the National Gay & Lesbian Chamber of Commerce (NGLCC), the LGBTQ business community includes 1.4 million business owners. By the NGLCC’s projections, it estimates that LGBTQ-owned businesses contribute over a trillion dollars to the US economy.

Starting and operating a successful business requires careful planning and strategic decision making. By understanding areas like entity structuring, financial management, business succession planning, and retirement plan options, you will be better equipped to maximize your company’s potential.

Choosing the Right Business Structure

One of the first steps in building a solid foundation for your business is selecting the appropriate entity structure. There are several possible options for structuring your business. Each structure has its own set of advantages and disadvantages, so it is important to understand factors like tax implications, liability protection, and flexibility before making a decision. Working with an experienced tax professional or CPA can help.

The most popular business structures are the Sole Proprietorship, the Partnership, the Corporation, and the Limited Liability Company (LLC).

Sole Proprietorship – A sole proprietorship is the simplest and most common form of business structure. This type of business is owned and operated by a single individual. The main advantage of a sole proprietorship is the simplicity—there are no separate legal formalities or paperwork required.

However, the business owner who operates as a sole proprietor will also be personally responsible for all of the company’s debts and liabilities—including legal action that may be taken against the business.

Partnership – The partnership is a type of business structure that is formed by two or more individuals who agree to share profits and liabilities. Decision making and workload can also be shared.

In addition, partnerships can offer more flexibility in terms of distributing the company’s profits. It is important to note, though, that general partners can be personally liable for the company’s actions and debts. Limited partners could also be at some risk with regard to any capital that they contribute to the business.

Corporation – Corporations are separate legal entities that are owned by their shareholders. One of the primary advantages of a corporation is the protection from liability that it offers to its shareholder owners. In this case, shareholders are not personally responsible.

Also, corporations have a “perpetual” existence, meaning that they can continue even after the death of owners/shareholders. While corporations can raise money by issuing stock, they can also be subject to more complex legal requirements and formalities.

An S-Corporation, or S-Corp, is a special type of corporation that allows the company’s profits and losses to be “passed through” to the shareholders’ individual tax returns. One of the big advantages of an S-Corp is the mitigation of double taxation on the company’s income.

On the other hand, S-Corporations can also have certain eligibility requirements and limitations on the number and the type of shareholders that it can have, so it would be important to have a good understanding of what these are.

C-Corporations are yet another alternative.  A C-Corp is a legal structure for a corporation in which the owners, or shareholders, are taxed separately from the entity.  It is a legal structure for a corporation where the company’s assets are separate from the owners’ assets.

Limited Liability Company (LLC) – An LLC, or Limited Liability Company, is a type of “hybrid” entity that combines the advantages of both a corporation and a partnership. The main advantage of an LLC is its owners, who are referred to as members.

Limited Liability Company members are not personally responsible for the liabilities or debts of the LLC. Also, Limited Liability Companies offer flexibility in terms of both management and taxation options.

Managing Your Business Finances

Proper financial management is crucial for the long-term success of any business. Creating a budget, tracking cash flow, and evaluating expenses are essential steps in maintaining your company’s financial stability.

In addition, using financial tools and software could help you streamline the bookkeeping process and provide you with valuable insights for short- and long-term decision making.

Another key area of your business strategy is tax efficiency. Understanding the tax deductions and credits that are available to businesses can assist you with minimizing tax liability and increase profitability.

By implementing effective recordkeeping and staying up-to-date with tax regulations, you can better ensure that your company is compliant and that you are able to take advantage of all available tax benefits.

Selecting a Retirement Savings Plan

As a business owner, you may also have access to enhanced retirement plan options. Depending on whether or not you have employees, you could offer a retirement savings plan to also help these individuals save for the future, as well as to attract quality talent to your company. In addition, implementing a retirement plan for your company can also provide tax advantages for the business itself.

There are various retirement plan options available. These can include a 401(k), an SEP IRA, and a SIMPLE IRA.

By exploring these options—and understanding the eligibility requirements and contribution limits—you can choose a company retirement plan that aligns with your business and personal goals. Working with a financial planning professional can help you narrow down which business retirement plan may be best for you, based on your specific needs and objectives. 

Protecting Your Company from Accidents

Regardless of what type of business you own, it is possible that accidents or incidents may occur. Therefore, if your company offers physical products and/or operates out of a physical location, it is critical that you have the right type of insurance to recoup losses from damage, theft, or natural disasters. It is also recommended that you carry liability insurance to handle any legal action taken against your company for injuries, errors, and other situations.

Some business owners obtain umbrella insurance. This coverage can offer an extra layer of liability protection by covering costs that go beyond other liability coverage limits. In this case, a commercial umbrella policy can take over when your company’s other liability coverage limits have been reached.

Business Succession Strategies

Depending on your goals for the company, you may wish to pass it on to a loved one or other successor when you retire, or possibly sell it to an interested buyer. In any case, it is important that you have a business succession plan in place. Otherwise, the company could be forced to close in the event of an unexpected incident such as the death or disability of an owner, partner, or even a key employee.

Business-succession planning involves creating a strategy for transferring the ownership and leadership of a company. Doing so can help to safeguard the business itself, as well as its employees and customers.

A well-executed business succession plan should ideally maximize the value of the company and protect the interests of its stakeholders. One of the most critical aspects of business succession planning is funding the transfer.

In the case of an unexpected passing or disability of a partner, owner, or key employee, “key person” insurance can play a big role. This is a type of life or disability insurance that provides funds for covering various financial obligations.

For instance, the funds from a key-person insurance policy can be used to buy out the shares or interests of the disabled or deceased individual. So in essence, it could allow the business to continue operating smoothly. With ample funds available, key-person insurance can also help to facilitate stability during the company’s transition period.

Your Team of Advisors

Running a business can take a great deal of time and effort—whether it is a large corporation or a one-person company—so it’s critical that you have it properly structured.

Seek the guidance of qualified professionals—including a financial planner, a CPA, and a legal advisor—who can work with you and provide valuable insights and knowledge in navigating the complexities of business structuring, retirement planning, and financial and tax management.

Additionally, an advisor who is knowledgeable about issues that affect the LGBTQ community can be beneficial, as they may be able to better understand your situation.