Hrm/531 Week 2 Individual Memo

TO: Fred Klingman, President of Mar Vista Custom Woods

FROM: Jeremy Newns, Contracted business analyst

DATE: June 11, 2016

SUBJECT: Recommended form of organization

You have asked me to analyze your plans for future growth and recommend the best form of business organization to accommodate that growth. I have also taken into consideration you’re your two main concerns of increased liability and ability to add investment in capital assets.

I recommend that you transition from a sole proprietorship to a limited liability company or LLC. This will allow you to take advantage of certain favorable tax treatments, as well as personal liability protection, for the “members” involved. I will list some key areas where you will benefit from operating

as an LLC.

As you know, and based on one of your chief concerns, once you do business with the public or have even one employee, you are wide open to legal liability. When you form an LLC, you create a separate legal entity from the one who owns the business. In the event that an LLC is sued, there are protections for the owners and managers from personal liability with successful judgments.

As a sole proprietor, existence of your business would end with your death or bankruptcy.

Existing as an LLC, the company could maintain perpetual existence. An LLC can still be dissolved upon death, withdrawal, resignation, or bankruptcy of a member, unless you have provided for these situations in either a written operating agreement between the members or the articles of organization.

There will be more tax deductions available to you after Forming an LLC. A few of these deductions include benefits like a retirement plan, medical expenses, business trips and client entertainment. The IRS audit rate for an LLC is much lower than that of a sole proprietor. You can own and be employed by an LLC at time same time, eliminating the self-employment return from your list of necessary tax documents.

Once salaries and overhead are paid, the members of an LLC can determine a method of sharing profits that makes sense for their membership based on seniority or a member’s investment. If a company does not have a defined profit sharing formula, the profit is then shared according to each member's ownership percentage. Profit distributions are not salary. Salary paid to members/employees gets taken out of revenue prior to determining the amount of profit available to

share.

In regards to control of the company, the LLC structure allows for multiple owners, or members, and a managing member. This means that if you bring on additional members for reasons of financial investment, or to manage a multi state expansion, you would still be the managing member. As the managing member, you would maintain majority control and would be responsible for the company’s management.

For these reasons and others, I recommend that you transition from a sole proprietorship to a limited liability company or LLC. Thank you for the opportunity, and I wish all of you the greatest of success.