During Monday’s episode of The Texas Hill Country Advisors webcast hosts Andrew Gay and Gilbert Paiz talked to Kerrville attorneys Greg Richards and Chad Hyde about the ins and outs of forming a business. The Texas Hill Country Advisors are financial backers of The Lead, and their show can be found weekly on The Lead’s Facebook page. The discussion here is really about the best entity to form, and here are three things we learned from the conversation between the lawyers and financial advisors.
The first step, according to Richards, is focusing efforts around writing a business plan. Here are excerpts from the conversation between Richards and Paiz.
Greg Richards: I've told somebody, hey, look, if you've got limited funds, go spend those funds and write a business plan first. Really try to understand, you know, do you have the capital to get this started? Do you have the talent? Do you, is the market ready for what you want to bring to it and just see if your idea is going to pass the smell test? Then, let's talk about entity selection.
Gilbert Paiz: That's a good first step because I think a lot of people. It is. Don't even stop to think about a business plan. They think, well, hell, shouldn't I just start the business? Blow right past it.
Greg Richards: it's really interesting because the business plan is not very fun to write. You know. Right. It's very tedious to have to sit down and come up with the proforma for what you think you're going to do in your first year.
Once that business plan is completed, the best entity to form is something to consider. During the course of the conversation, Richards and Hyde discussed how tax law has led to a shift in how companies are formed.
Richards: The most popular one nowadays is the LLC or limited liability company. It's the most flexible. You can take an LLC from a single owner all the way up to a publicly-traded company. It's kind of a du jour entity of choice nowadays whereas, you know, if you backed up 20 or 30 years ago, it was a corporation. A big piece of that is that the tax laws change years ago and used to your entity selection was tied to how do you want to be taxed? If you want to be taxed as a corporation, form a corporation. You want to be taxed as a partnership for an LLC. The IRS has done away with all that. You now create an entity and then you fill out a form and you check the box say, I want to be taxed as and fill in the blank.
When it comes to setting up the company, Richards and Hyde said online tools are available, but that they often receive a lot of referrals from those sites because of inherent complications of forming a business.
Chad Hyde: A contractor we know jumped on an internet platform to start his company, and not consult an attorney. He formed a company but he could never completely get it started off the ground. So, that's where I came in. I helped him finish the product and gave him the knowledge to help run his business. So, that was the reason why he started the company because of liability purposes.
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