Miles Espy, with accounting firm Draffin & Tucker, said he would seldom recommend proprietorship as a business entity because of the lack of liability protection it affords the owner. Espy gave an overview of various types of legal business entities at a seminar on Tuesday.
ALBANY -- A hour-long seminar was given Tuesday at Albany Technical College for the purpose of advising future business owners in choosing the most appropriate legal entity for their companies. The title of of the seminar was "I'm a What?" and was presented by the accounting firm of Draffin & Tucker LLC as a part of Albany's Small Business Appreciation Week that continues through Friday.
According to Miles Espy, a partner with Draffin & Tucker and chairman of the Albany Area Chamber of Commerce board, while the seminar was not intended as a substitute for consultation with a CPA or a corporate attorney, it provided basic information that might reduce the time spent with a professional, possibly lowering consultation fees.
"A lot of times people are so eager to do what they want to do in their business, they don't give proper consideration to the tax or liability issues," Espy said.
Espy said there are five primary business entities from which to choose, and making a proper choice would depend on a number of variables regarding the particular business, including the number of owners, amount and type of capitalization, amount of debt and whether investors would need to withdraw substantial funds within a short period of time.
According to Espy the automatic and most common entity is the sole proprietorship, available to individuals and married couples. Income from the business is considered personal income and taxes are filed in that way. Espy said he would seldom -- if ever -- recommend the entity because of a total lack of liability protection. If the business is sued or becomes liable for any type of loss, there is no distinction between business assets and those of the owner.
Partnerships, by definition, must have more than one owner, Espy said, and partnerships may be either general or limited in their structure. A general partnership is similar to a proprietorship in the sense the law does not distinguish the partners from their business. In a limited partnership, some or most of the partners may enjoy a limit of liability equal to their investments.
Espy also explained some of the complexities of corporations and "S corporations," including the "double taxation" of corporations and the legal separation of both entities from their respective owners. That separation, Espy said, is important to the owner for the protection afforded should the company incur a major loss due to liability.
A type of entity which is becoming more popular, Espy said, is the limited liability company, or LLC, the form under which Espy's accounting firm operates. The LLC provides liability protection to its owners with income allocation and operational matters determined by agreement of the owners. There is flexibility in how taxes are paid as well.
The business entity seminar was filmed and recorded in its entirety, and will be available for viewing through Albany Tech and the chamber, said Bill Sadler, chairman of the Chamber's Small Business Resource Committee.