When you start a business, you need a plan. Part of the plan should be your exit strategy. For many people, the ideal exit plan is to take the company public and hire professional executives to run it. To do this, you must pick the correct business entity when starting the business.
What are we referring to when discussing business entities? There are various forms you can hold a business in such as partnerships, limited partnerships, limited liability companies and corporations. Only one of these entities, however, can be taken public.
Most businesses today are formed as either a corporation or a limited liability company. They are the most popular because they shield their owners from personal liability for debts incurred by the company such as an office lease.
Many people think the LLC has been around for a long time. It has not. The first one was formed in the late 1970s in Wyoming. The state passed law giving rise to it to boost tax revenues and help out small businesses.
The limited liability company did not expand much beyond Wyoming until the late 1980s when the IRS issued an amazing regulation. Essentially, the IRS said a limited liability company could be taxed like a partnership, a huge advantage over being taxed as a corporation.
This minor tax change resulted in the LLC madness we see today. States rushed to pass legislation allowing for them and people begin to take notice of that funny LLC designation after business names.
Of course, the limited liability company has many warts. They range from excessive state fees to federal tax issues if there is only one owner of the entity. For people who are looking to take a business public, however, they have one huge problem.
A limited liability company is truly designed for small business situations. It is not and was never intended to be used for large entities. As a result, the owners of an LLC have percentage interests in the company. They do not own shares because there are no shares.
As you have probably noticed, all large publicly traded companies have shares. The prices of these shares are discussed ad nauseum in the media. These shares are a necessity if a company is to be owned by the public.
If you want to take your company public one day, you must choose a corporation as the business entity. Any other choice is going to be problematic.
What are we referring to when discussing business entities? There are various forms you can hold a business in such as partnerships, limited partnerships, limited liability companies and corporations. Only one of these entities, however, can be taken public.
Most businesses today are formed as either a corporation or a limited liability company. They are the most popular because they shield their owners from personal liability for debts incurred by the company such as an office lease.
Many people think the LLC has been around for a long time. It has not. The first one was formed in the late 1970s in Wyoming. The state passed law giving rise to it to boost tax revenues and help out small businesses.
The limited liability company did not expand much beyond Wyoming until the late 1980s when the IRS issued an amazing regulation. Essentially, the IRS said a limited liability company could be taxed like a partnership, a huge advantage over being taxed as a corporation.
This minor tax change resulted in the LLC madness we see today. States rushed to pass legislation allowing for them and people begin to take notice of that funny LLC designation after business names.
Of course, the limited liability company has many warts. They range from excessive state fees to federal tax issues if there is only one owner of the entity. For people who are looking to take a business public, however, they have one huge problem.
A limited liability company is truly designed for small business situations. It is not and was never intended to be used for large entities. As a result, the owners of an LLC have percentage interests in the company. They do not own shares because there are no shares.
As you have probably noticed, all large publicly traded companies have shares. The prices of these shares are discussed ad nauseum in the media. These shares are a necessity if a company is to be owned by the public.
If you want to take your company public one day, you must choose a corporation as the business entity. Any other choice is going to be problematic.
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