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What Wine Or Hospitality Business Are You Creating? Forming A Corporation

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Are you considering starting a winery, restaurant, bed and breakfast, catering, wine-based or hospitality business? If so, when forming a business it is important to choose the legal structure that’s right for your type of business formationbusiness circumstances.

In the earlier posts of this series, we considered the “Sole Proprietorship” and the “Partnership” business entities. Knowing and understanding how each of these legal structures work will enable you to decide what legal structure is right for you. In today’s post, we will consider forming the “Corporation”.

Corporations

Incorporating your business can be complex and expensive. Forming a corporation is a way for you to limit your personal liability (with some exceptions) for the debts of your business that you do not personally guarantee. A corporation is a separate entity from the person(s) who own or operate it.  There are two types of corporations that are distinguishable based on federal taxation laws.   A “C-Corporation” is a business entity that is separate from its owners and must pay federal corporate income tax. Conversely, a “S-Corporation” is a business entity that does not pay federal income tax. Taxes for the “S-Corporation are paid by the corporation’s owners.  To form a corporation in Pennsylvania, Articles of Incorporation must be filed with the Corporation Bureau with the Pennsylvania Department of State.

S-Corporation

Electing to establish your business as a S-Corporation allows you to limit your liability as a corporate owner but requires you to pay income taxes the same way one would if they were a Sole Proprietor or Partnership.   For purposes of income tax, the income is considered earned by the corporation but is passed through the corporation to the corporate owners or shareholder’s personal income tax return.   To elect to operate as an S-Corporation, the corporate owner must sign and file IRS Form 2553.  Unlike the C-Corporation, which has a two tier double taxation structure, an S-Corporation tax bill is likely to be less and may therefore be a more suitable option for a start up business entity.   Additional restrictions apply regarding citizenship and shareholder size that may also need to be considered.

C -Corporation

A C-Corporation is a regular for profit entity that is separate from its owners and taxed under IRS corporate income tax rules.   The corporation files its own tax returns and pays corporate taxes on the profits accumulated in the business.   If the profits of the corporation are distributed to its owner(s), then the owners must pay individual taxes on the salary, bonuses, or dividends they receive.   This is known as the C-Corporation’s double taxation structure. When forming a corporation, you must follow certain corporate formalities. You will need to hold annual directors and shareholder meetings.  You will need to keep minutes of your corporate meetings and maintain good record-keeping systems.

As discussed in the earlier posts of this series, different business structures provide different risks, protections, and ease of administration.  In the next post of this series, we’ll consider the Limited Liability Corporation.   What wine or hospitality business are you creating?

What’s Your Plan For Starting A Winery, Wine Or Hospitality Business?

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grand-business-planEvery business should have a plan. Too often, new business owners fail to commit their business goals and objectives to writing.   Whether your dream is to start a winery, open a restaurant, buy a bed and breakfast, or to create your own wine based or hospitality business, you need a plan.   A well thought out business plan helps you to determine where you see your business headed in the future.

Do you have a business strategy? Do you know who your customers are and where to find them? How will you try to raise money? What do you want your business to look like five years from now? A good business plan sets out your goals and tactics in a measurable way to guide you in achieving your dreams.

A good business plan at a minimum will address key elements:

Business strategy – What is the nature of your business? How will you describe your products and services? What are the elements that make your business a success? What is your geographical location? How consolidated or fragmented is your customer base geographically? Why and how will your business have a competitive advantage?

Marketing and Sales Planning – What’s your commercialization strategy? Who’s your target market? How do you plan to reach your customers? How will you gain market share? What trends and changes impact your target market?

Financial Information – How much income will you need? What are your sources of financing? Do you turn your inventory quickly or slowly? What are your sales projections? Do you have audited financial statements, profit and loss reports, balance sheets?

Management – What is the legal structure of your business? Are you incorporated? Are you a partnership? How will your business be managed? What is the biographical information for your directors/officers?  What are the details of the ownership or your company? Will your family members work in your business?

Operations – What is your company’s organizational structure? How much personnel will be required to reach your goals? What functions will your business require and how will they relate to the generation of revenue for your business? What facilities, equipment and supplies will you need? How will your operations change as your business grows? How will your business operate day to day?

Milestones – What factors will determine when you’ve reached and achieved your goals and objectives?  Are your milestones measurable? What are your short and long term goals? How will you overcome challenges and gage your accomplishments? How will you determine if you are on track?

As you can see, there are many factors to consider.  A well written business plan is your blueprint for success.  It will serve as your guide for your business vision months and even years later. A solid business plan can be critical to ascertaining funding and investors for your business.  A banker or loan officer will require you to produce a business plan.  Your business plan is your calling card.

Are you ready to start a winery or vineyard?  Are you ready to open your restaurant or wine tasting business? Do you have an existing business you want to grow?    If so, commit to writing your thoughts in a logical, organized way. The U.S. Small Business Administration has a useful guide to writing your business plan and a tutorial to guide your through the process.

Plan for the success of your business.  Create your business plan.

Ready…Set…Go!!

What Winemaker Do You Have Your Eye On?

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Do you have your eye on a particular winemaker, executive chef or marketing guru for your winery or13_private_detective_looking_through_magnifying_glass_for_clues_-_sherlock_holmes hospitality based business? Are you looking for ways to attract key talent to your business? If so, your may want to consider an employment agreement as an option for retaining that “must have” person for your business.

Employment agreements are valuable tools to have in your business toolbox. They can be beneficial to both the employer and the employee. The parties enter into these written agreements in order to define their expectations around the employment relationship. These agreements can be very useful for recruiting, attracting, and retaining key employees.

For example, as an employer you may not want your competitors to hire that valuable employee you’ve managed to land, or to lose the intellectual property information about your business that he or she possesses. Thus, the employment agreement can offer you a level of protection that you may not have had otherwise. The employment agreement can be an insurance policy of sorts, protecting against an employee’s failure to act in accordance with the prior agreed upon terms.

Alternatively, your future employee  may want certain assurances in the event of discharge. If the employment relationship begins to crumble, there are typically termination and severance provisions in the agreement that address what are to be the financial payments to the employee in the event of termination.

While these agreements may include provisions that obligate the employer, they can also restrict the employees in areas of key interest to the employer. There are various clauses that may be included in the employment agreement to protect an employer’s interest. A few important provisions to consider in a well drafted employment agreement are as follows:

Compensation Clause: This provision details monetary expectations including salary, bonuses, benefits, relocation and other compensatory items the employer and employee may negotiate.

Non Compete Clause: This provision protects the employer from employees accepting employment with a competitor, starting their own competing venture, or working for the competition while they are still employed with you.

Non-Disclosure Clause: A non disclosure or confidentiality clause prohibits an employee from unauthorized disclosure of confidential or proprietary information, trade secrets, inventions created or known as a result of their employment.

Ownership of Intellectual Property Clause: This provision details who owns the intellectual property created by the employee during the duration of the employment period.

Non-Solicitation Clause: This provision is designed to prevent your employees from soliciting your valuable assets such as other employees, customers, suppliers or clients away from your business when they leave.

Arbitration Clause: This provision provides for the arbitration of employment disputes versus court litigation.

So, the next time you have your eye on hiring that very special winemaker, executive chef, marketing guru or …better yet…your own idea of that “must have” talent for your business, carefully consider an employment agreement.

What Wine Or Hospitality Business Are You Creating? Forming A Partnership

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Are you a great team player? Can you make a marriage work? Do you recall telling your co-type of business formationworker, friend or loved one, “let’s sink or swim together” ? If so, perhaps that idea or concept that you and another have been incubating over time is ready to take flight and evolve into a General Partnership.  Whether you are considering pursuing a winery, restaurant, catering, event planning, bed and breakfast, wine based or hospitality business, the type of business structure you choose will be determinative of the potential tax and liability issues you will face.   In my earlier posts in this series, we discussed the Sole Proprietorship business entity.   In today’s post, we’ll consider three basic types of partnerships.

General Partnership

A general partnership is a business enterprise where two or more people co-own a business. Each person in the established entity is a “partner” who share fully in business’s profits and losses. Each has liability for the debts or obligations of the business. A partnership can be created based on a handshake, oral agreement, or by formal written agreement. Typically each “partner” can individually bind the business to a contract, business deal, or other third party actions that create liability for which the other partners can be personally held responsible. Thus, this kind of business arrangement requires a great deal of trust between the parties. (Think marriage vows !)

Although not legally required (an oral agreement will do) its wise for you and your other partners to consider signing a partnership agreement that identifies the rights and responsibilities of the partners. While organizing documents are not required by the Commonwealth, registration of a fictitious name ( a name different from your name and the name of your partner(s) is required in addition to publication of an advertisement in two newspapers in the county where your business is located.

Limited Partnership

A Limited Partnership is one that limits the liability of certain partners for debts beyond their partnership investment. A Limited Partnership is formed with at least one general and at least one limited partner.  As an advantage, the limited partner is considered “passive” and is not personally liable for the management and actions of the partner(s) and does not participate in the management decisions. Conversely, the general partner can be held personally liable and has no such protections. Excepting the limited partner, legally a partnership is inseparable from its owners.

Limited Liability Partnerships

Both General Partnerships and Limited Partnerships may form a Limited Liability Partnership. The Limited Liability Partnership is a form of general partnership wherein state general partnership laws statutorily relieve the partners from all or part of their personal liabilities, debts, and obligations. A partner in an LLP may not be individually liable for the the misconduct or wrongful obligations of another partner.  However, the partner may remain liable for their own actions, traditional partnership obligations and liability for those  persons under their direct control.   An LLP is created by filing a registration statement as specified by state statue.

A Partnership is easy to form as a business entity and offers a great deal of flexibility.  A Partnership can end by the death, bankruptcy or withdrawal of the partner from the Partnership.  Much like the Sole Proprietorship, the taxes of the business “pass through” to the partners. The partners pay income tax on their proportional share of the income based on their individual tax rates.

Are you ready to walk down the aisle (excuse me–path) to form a business Partnership? If so, a Partnership may be in your future.   In the next post of this series, we’ll consider other forms of business structures.

What wine or hospitality business are you creating?

What Wine Or Hospitality Business Are You Creating? Forming the Sole Proprietorship

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In my recent travels along the Pennsylvania wine trail, I met an entrepreneurial minded young lady who expressed an interest in forming a “wine-tasting business”.   We briefly explored her needtype of business formation to create the right business structure.   Thus, I thought I would  discuss the various business structures for those of you who are considering opening your own winery, restaurant, catering, event planning, bed and breakfast or hospitality business.  The type of business structure you choose is determinative of the personal liability and tax consequences you will face. You will need to consider the amount of control you wish to have as well as your business exposure to lawsuits.

There are advantages and disadvantages to each form of legal business structure.   The different types of business entities include: Sole Proprietorship, Partnership, Corporations, and Limited Liability Company. I will discuss the differences in these legal structures in a series of several posts.   As you consider starting your own wine or hospitality based business, think about how you want your business to be structured.   In today’s post, I will begin with the Sole Proprietorship.

Sole Proprietorships

The most simple of business structure is the sole proprietorship.   There are no multiple owners in this form of business structure.   The sole proprietorship is the easiest and least expensive business structure to operate.  In this type of business formation you are in sole control of the management of your business.  This is one of the advantages of operating as a sole proprietorship.   There are no organizing documents to be filed with the State.   First, name your business.   You should determine that the name you select is available for use and that you are entitled to use it.   Any sole proprietorship conducting business under a fictitious name (a name other than your own) must register this name with the Pennsylvania Department of State Corporation Bureau.   In the Commonwealth of Pennsylvania if you operate your sole proprietorship under a name other than your own, you are required to publish an advertisement in two newspapers in the county where your business is located. You must state that you have filed or intend to file a fictitious business name registration. While you are not required to do so, you may want to give consideration to registering your business name as a federal and or state trademark.

Every business subject to employment taxes is required to have a Federal Employer Identification Number (EIN) to identify the business with the Internal Revenue Service (IRS) and Social Security Administration (SSA).  You may apply for an EIN even if you have no employees.   This will make it easier for you to establish your business’s bank accounts.  You should preferably keep your business finances and record-keeping separate from your personal accounts.

While the sole proprietorship is the simplest form of legal structure, do not sleep on your obligations.   As a sole proprietor, you can personally be held liable for all financial obligations of the business.   This also includes any unlawful acts of your employees.  You ask, what does this mean?  It means that if you don’t pay your suppliers, fail to pay your creditors, or you lose a lawsuit, then the business (which is you) has to pay.    If you fail to pay, your creditors could legally come after your home or your possessions.

Tax filing for the sole proprietorship has easy reporting requirements.  Legally, the sole proprietor is not separate from the individual who owns it.   Business income or losses are reportable through the IRS Tax Form 1040, Schedule C with the sole proprietor’s personal income tax return.  Sole proprietorships avoid double taxation often associated with certain corporations.

You should ensure that you have all licenses or permits required to operate your business as most counties or cities require sole proprietorships to obtain local zoning, seller’s permits or business license and tax registration certificates.

In the next post of this series, we’ll consider the other forms of business structures.   What wine or hospitality business are you creating?