There are a lot of ways to setup a small business, but some ways offer more protection than others from a verity of threats, local business leaders learned at the Midlothian Business Breakfast on Wednesday morning.
Robert Nass, an accounting professor at Dallas Baptist University, spoke to a full audience about the importance of thinking through several different options business owners have when making choices on how to set up their wills, structure their companies and making insurance selections. The monthly breakfast is held at 7 a.m. the first Wednesday of each month. Each breakfast provides local business owners and employees information and suggestions to improve their business practices and increase their long-term success.
Nass offered several areas small business owners should think about to protect their businesses.
1) Liability protection
Incorporating a business protects the business owners personal assets if something goes wrong with the business, but does not protect business assets from any personal issues the owner may face, he said. For example, if a business owner gets sued for causing an accident during their leisure time.
“If you have a cooperation, you own shares in your company, maybe all the shares. Shares are personal property and can be taken away from you,” Nass said.
Because of the structure, if a business owner has an LLC the court can only issue a charging order allowing the person to collect dispersant on the shares. But there are many legal ways to reduce the disbursement amount of a share and encourage the charge order holder to settle instead, he said.
2) Tax protection
If a business owner works for their LLC, they have several options for how the IRS will handle their income tax to reduce their tax burden, Nass said. By selecting to be taxed as an S Corporation, reasonable wages received from the S corporation are not taxed as self-employed income at 15 percent, reducing the overall tax burden on the same take home amount, he said.
3) Cyber attacks
Businesses also need to start considering cyber attack insurance in case their business is hacked and their customers' information stolen, Nass said. Cyber attack insurance is often very reasonable, he said.
4) Sales tax
Many businesses, especially those who provides services as well as goods, do not fully understand sales tax laws, Nass said. It is worth sitting down with a CPA to review the correct procedures to charge sales tax because the Texas Comptrollers Office often catches mistakes while looking over a supplier's or customer's paperwork.
“I would rather deal with the IRS than the Texas Comptroller any day,” Nass said. “They are quick; they can freeze your accounts and knock on your door in weeks. The IRS you can write a letter and delay the process for a few months.”
Business owners also need to consider what would happen to their company if they died, he said. Family members may not want the business or may fight over control. If the business is a partnership, the business can hold life insurance on the partners to allow the other partner to buy out the company if one partner dies, revealing the family of responsibility, Nass said. Wills are also very easy to execute in Texas, less costly than a living trust and reduce confusion after a business owner dies.