Book SummaryStart Your Own Corporation, by Garrett Sutton

1-Page Summary1-Page Book Summary of Start Your Own Corporation

Selecting the most suitable legal structure for your business is a crucial choice.

This section of the book describes the approach to selecting and organizing legal entities to protect business activities and investments. The book offers a comprehensive analysis of how different business structures such as corporations, limited liability companies, and limited partnerships function, and it discusses their advantages and disadvantages in various scenarios.

Exploring the diverse forms of business entities such as corporations, LLCs, and limited partnerships.

Sutton provides a comprehensive examination of the unique characteristics of different business structures, helping individuals choose the one that best fits their specific needs. The analysis emphasizes the significance of selecting a business structure that corresponds with personal goals and circumstances.

Corporations offer the advantage of lower tax liabilities, along with unrestricted ownership and increased flexibility in their operations, yet they must also contend with the potential for their profits to be taxed twice.

Sutton emphasizes the considerable benefits of forming a corporation, which notably diminishes individual risk and traditionally encourages business ventures. Garrett Sutton explains that shareholders of C and S corporations are able to protect their personal assets from business-related debts and lawsuits thanks to the limited liability characteristic of these corporations. Companies gain an advantage through lower taxes on their early earnings, which facilitates strategic reinvestment and expansion opportunities. Investors are drawn to the structure of corporations for public trading as they can accommodate a diverse range of ownership arrangements, including the capacity for an indefinite quantity of shareholders and assorted classes of shares. Garrett Sutton warns of the potential for profits to be taxed twice, first at the corporate level and then again when dividends are paid out to shareholders.

Shareholders who choose an S corporation can bypass the threat of being taxed twice because this structure permits profits and losses to be reported directly on the personal tax returns of the shareholders. To maintain their special status that permits earnings distribution to shareholders, S corporations must comply with specific IRS regulations and are restricted in the number and kind of shareholders they can have.

Other Perspectives

• The statement may not hold true in all jurisdictions, as tax advantages vary greatly depending on local, state, and federal laws.
• The impact of double taxation is often overstated, as the effective tax rate for dividends is typically lower than the rate for ordinary income, due to preferential tax treatment in many jurisdictions.
• The protection of personal assets in a corporate structure might not always encourage business ventures, as some individuals may be deterred by the perceived complexity and impersonality of corporate operations compared to sole proprietorships or partnerships.
• Shareholders in professional corporations, such as those for lawyers or doctors, may still be personally liable for malpractice claims, regardless of the corporate structure.
• Tax incentives for early earnings could result in a short-term focus on financial performance, potentially at the expense of long-term sustainability and ethical business practices.
• The regulatory requirements for public corporations can be burdensome and expensive, potentially making them less attractive to some investors who favor more agile and less regulated investment opportunities.
• Reporting profits and losses on personal tax returns can complicate an individual shareholder's tax situation, potentially requiring more sophisticated tax planning and advice, which could increase the cost of compliance.
• The requirement for shareholders to be of a specific type can hinder the ability of S corporations to attract foreign investment, which can be a significant source of capital for some companies.

Individuals who establish Limited Liability Companies benefit from the direct transfer of profits and losses without incurring corporate tax obligations, possess the ability to manage and distribute income with flexibility, and their personal assets are safeguarded, despite potentially encountering elevated state charges and a legal framework that is not as extensively established.

Garrett Sutton praises Limited Liability Companies for combining the advantage of limited liability found in corporations with the tax advantages of partnerships, enabling profits to be taxed at the personal level. The author emphasizes the flexibility inherent in LLCs, allowing them to be organized so that management is either in the hands of the owners or delegated to selected managers, based on how much involvement and supervision the owners wish to have. Sutton emphasizes the flexibility inherent in LLCs, enabling the drafting of customized partnership agreements and profit-sharing arrangements that cater specifically to the initial investors' distinct requirements, by offering a framework capable of allocating profits and losses in a bespoke way.

Sutton emphasizes the strong safeguarding of assets that LLCs offer, especially pointing out that Nevada and Wyoming have particularly strict laws regarding charging orders. Garrett Sutton explains that a charging order limits a creditor to only the debtor's disbursements from the LLC, thus impeding the creditor's ability to seize the actual asset. The author acknowledges that although Limited Liability Companies offer benefits, they also carry disadvantages including a less extensive track record of legal precedents and the possibility of higher expenses and taxes in certain areas, like California.

Context

• Members of an LLC may be subject to self-employment taxes on their share of the profits, which cover Social Security and...

Start Your Own Corporation Summary Strategies for safeguarding assets

This section of the book delves into the strategies recommended by the author for protecting assets from claims by creditors and judicial rulings. Sutton emphasizes the importance of using entities to create a "legal shield" around one's assets, maximizing the benefits of legal structures like LLCs, LPs, and Nevada and Wyoming corporations.

Allocating resources across a range of distinct organizations.

Sutton highlights the strategy of protecting assets by employing separate entities for different business activities and investments. Garrett Sutton explains that this approach allows for the limitation of potential lawsuit impacts to the specific entity in question, thus protecting assets held in distinct entities from being accessed by creditors.

Creating separate legal structures to manage business activities and to possess assets.

Sutton advises readers to separate their customer-facing operational businesses, which are more susceptible to legal disputes, from their asset-holding entities. This strategy involves overseeing routine corporate operations while ensuring that valuable holdings such as patents and investment accounts are held within separate legal...

Start Your Own Corporation Summary Strategic oversight and structuring with a focus on fiscal implications.

Utilize a range of strategies to skillfully work through the tax code, thereby minimizing their tax burden and improving their economic benefits. Sutton emphasizes the necessity of collaborating with proficient accountants capable of devising efficient financial management tactics and ensuring readiness for fiscal responsibilities.

Ensuring your business takes full advantage of permissible tax deductions.

Sutton provides strategies for business owners to maximize their use of the tax code by recognizing and deducting legitimate business expenditures, thereby reducing their overall tax liability. He emphasizes the significant distinction in tax treatment between business owners and employees, highlighting that businesses have access to numerous tax deductions that are not available to employees.

Deducting initial costs of starting a business, continuous expenses for operations, acquisitions of inventory, and investments in long-term assets.

Sutton provides a thorough analysis of the various expenses that businesses can write off, including the costs of initial establishment, regular operating expenses, purchases of inventory, and capital investments. He provides...