When forming a business, one of the first decisions an entrepreneur will make is choice of entity. This session will cover the possible legal structures for your business, including liability and tax advantages and disadvantages. Learn the basics of Corporate Formation -Introduction business formation and understand the pros and cons of incorporating in Michigan and Delaware.

1. Ann Arbor SPARK –
Business Law & Order
September 20, 2010
Tax Considerations on
Choice of Entity, Formation and Start-up Operations
Thomas D. Hammerschmidt, Jr.
Dickinson Wright PLLC
thammerschmidt@dickinsonwright.com

2. IMPORTANT Tax considerations
• Taxation of entity
• Taxation of owners on operations
• Tax consequences of property transfers to the entity and owner's receipt of
ownership interests
• Transfers from businesses, liquidations
• Employee benefits
• Other tax considerations

3. TYPES OF ENTITIES
C Corporation Limited Liability Company
S Corporation Individual (sole proprietorship)
General Partnership Trust, Non-Profit Corporation
Limited Partnership

4. CHOICE OF ENTITY CONSIDERATIONS
• Limited liability
• Restrictions on ownership
• Transferring ownership interests
• "Corporate" governance
• Tax considerations

5. TAXATION OF ENTITY AND OWNERS
• Entity-level taxation
("double taxation")
• Conduit (pass-through) treatment

6. TAX ATTRIBUTES OF C CORPORATION
• Taxation at entity level
• Owners taxed again on dividends
• Deduction for owner salaries and bonuses – reasonable compensation
• Additional tax returns
• No restrictions on ownership
• Typically suitable for foreign owners

7. TAX ATTRIBUTES OF C CORPORATION
(continued)
• Tax losses in early years; NOLs
• Tax-free transfers to corporation
• Taxation of sale of owner stock
• Tax consequences of liquidation and dissolution

8. TAX ATTRIBUTES OF S CORPORATION
• No entity level taxation; pass-through to shareholders
• S corporation losses; shareholder basis issues; loans
• Restrictions on ownership; eligible shareholders
• Tax-free transfers to corporation
• Taxation of sale of owner stock
• Tax consequences of liquidation and dissolution

9. TAX ATTRIBUTES OF PARTNERSHIP
(INCLUDING LLC)
• No entity level taxation; pass-through to partners
• Tax-free transfers of property upon formation
• Receipt of partnership interest for services; capital vs. profits interest
• No restrictions on ownership
• General versus limited partners; basis issues
• Typically unsuitable for foreign owners
• Passive activity losses and "at risk" limitations
• Sale of partnership interests or assets; "hot assets"

10. TAX ATTRIBUTES OF INDIVIDUAL/
SOLE PROPRIETORSHIP operations
• No double-taxation; "Schedule C" reporting
• Limited liability; single member LLC vs. sole proprietorship

11. EMPLOYEE BENEFITS ISSUES
• Qualified plans vs. other employee benefits
• Non-discrimination rules
• Restrictions on 2% partners and S corporation shareholders

12. OTHER CONSIDERATIONS
• Cash vs. accrual basis accounting
• Accounting period
• State taxation
• Sales, use and service taxes

13. OFFICER/PERSONAL LIABILITY
• Federal "responsible person" liability
• State (Michigan) officer liability

14. disclaimer
This slide presentation is informational only and was prepared to summarize
relevant business and tax considerations relating to entity formation and
early business operations. It does not constitute legal or professional
advice. You are encouraged to consult with a Dickinson Wright attorney if
you have specific questions relating to any of the topics covered in this
presentation.

15. biography and contact information
Thomas D. Hammerschmidt, Jr.
thammerschmidt@dickinsonwright.com
734.623.1602
PROFESSIONAL INVOLVEMENT
Member, Taxation Sections of the American Bar Association and State Bar of Michigan;
Chairman of State and Local Tax Committee, 1990-1992
Member, Michigan Association of Certified Public Accountants, 1981; Member of State
and Local Tax Committee, Single Business Tax Subcommittee Chairman, 1991-1996
PUBLICATIONS AND PRESENTATIONS
Frequent speaker, Michigan Association of Certified Public Accountants' annual
conferences and seminars on state tax matters
American Bar Association Section of Taxation, Contributing author, “State and Local
Taxation of Banks and Other Financial Institutions," 1995
The Tax Executive, co-author, “Michigan Nexus Developments”, March 1995
Michigan Bar Journal, “Resolving Michigan Tax Disputes," 1992
Lorman Education Services, co-author and speaker, "Michigan Sales & Use Tax," 1989-
1995
Wayne Law Review, “Annual Surveys of Michigan Tax Law,” 1988-1991