Managing the Business | Business Management Assignment
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Added on 2019-09-16
Managing the Business | Business Management Assignment
Added on 2019-09-16
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Axsom and Axsom, PA555 69th Avenue, St. Petersburg, FL 33706November 14, 2016Mr. and Mrs. Fredrick Smith29 Barkview Lane, St. Petersburg, FL 33715Dear Mr. & Mrs. Smith:Congratulations on your decision to market your cough remedy. Here are some guidelines I feel you might want to consider to protect your assets to creating your business venture. I will outline important key issues as a preliminary start to making things good as smooth as possible so you can concentrate on making a profitable business for you and your family. You want to think about the type of business company structure you would like to set up. I feel you would be better off, tax-wise, to incorporate your business so that you can protect your assets. If you decide to set up as a sole proprietor, you are exposing your personal assets and will have to pay more in taxes. The formation is easy and managing the business is easy but you set yourself up for losses and liabilities if sued. If you set up as a corporation and I suggest a Sub-S Corporation, you will receive a K-1 Schedule at the end of the year. This schedule will show your losses or profits and will pass through to your personal tax return. The company itself will not have to pay taxes but will have to pay property taxes on any equipment and inventory it may have at the end of the year. The other type of company you could consider is a Partnership which is a voluntary association between two or more people who co-own a business for profit. The formation is easy. The partners, each considered an agent of the partnership, are generallynot required to create an official or even a written agreement to establish it. Another advantage to this type of structure is in most cases the partnership is not considered a separate legal entity, income from the business is taxed as individual income for each partner. For that reason, partners can also deduct business losses from their taxable income. The disadvantage for a Partnership is the other partner is liable for each partner. In this case, you and your wife are married so I don’t feel a partnership would be the best business set up. Another type of business is a Corporation. These business setups have shareholders. The business itself can be sued but not the shareholders. The downside to this type of setup is the double taxation. The is one other type of corporation you might want to examine. It’s called the Limited Liability Corporation (LLC). This type of structure is similar to the Sub S Corp. but one difference is that the S corporation’s
existence is perpetual, but some states require LLCs to list a dissolution date in the formation documents. Certain events, such as death or withdrawal of a member, can cause the LLC to dissolve. In addition, the transfer of stock is freely transferable with a Sub S Corp. and is not with the LLC. With the LLC, you would haveto get member interest to agree on any transfer of stock. Again, I feel your best setup, fornow, would be the Sub-S Corporation. That way, you can protect your assets and pay less taxes. If you start to grow, you could form a Corporation so you can raise more capital. A Corporation has more than 100 shareholders. A Sub-S Corporation has less than 100 shareholders. You might want to consider researching an ingredient that isn’t allergic to aspirin as aspirin is a well-known over the counter medication. The is a huge issue with product liability here with this type of product. You will want to get your medication approved by the FDA. If it is not approved, you sell it and someone becomes ill or dies, you could be sued. Since you are aware that it could be allergic to aspirin and someone has a terrible reaction to your cough medicine, you could be sued personally. I know the business structure is set up to protect you but if you knowingly sell a product that could be dangerous, that is considered negligence by law. Is your product approved by the Homeopathic Association? You might want to consider either changing the name to a more “natural” remedy than a “miracle” remedy for the public’s sake and for advertising. You will need to hire an agent to act as your representative should and when you need one. Since you are setting up a company to sell an over the counter medication, I would highly recommend retaining an agent. Most states require that you have one. An agent isusually retained by a company to represent you such as an attorney who is also called a fiduciary. What will be your role as the entrepreneur of this type of company? You should sit down with your family, discuss who will be management, who will oversee financials and run the day to day operations. This is called the organization of a business structure. It is very important to have and create By-Laws so that you can protect yourselves and each other. You want to identify the real property you will use for your manufacture. I understand your son will help with deliveries of the products and is researching national chains for distribution. When you incorporate your business, you need to set up a list of your contribution (also known as capital) that you will be using for your facility. You would need to transfer these items to your new business. As far as your land, farm and other real estate, you need to determine what you will maintain for personal and professional use. The IRS states you can write off a certain
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