Question

Your friend Brett is starting a landscaping business. He says he isn't worried about creating a legal form of ownership until several months after the business is started. "Besides, I can hire a lawyer if something comes up." What would you tell Brett? Explain.

Answer 1

There are a variety of ways to legally organize a Landscape business. Choice of business organization should be one of the landscape professional’s earliest business decisions. However, once an owner or ownership group starts operating his or her business many factors that were previously not considered may come to light.

For the most part, there are three business structures that may be set up in different ways. The three basic structures are Sole Proprietorship, Partnership or a Corporation. A fourth choice that is an excellent fit as to the way we as Landscape Professionals carry on business would be a Limited Liability Company (LLC). For accounting purposes an LLC can be set up like either of the first three and taxed accordingly.

LIMITED LIABILITY COMPANY (LLC):- A limited liability company (LLC) is a flexible entity structure that can combine the concepts of sole proprietorships (if there is one owner), partnerships and /or corporate structures. It is a legal entity that provides limited liability to its owners and is organized under state laws. For tax purposes a sole member LLC can be treated as a proprietorship and taxed directly on the owner’s tax return.

SOLE PROPRIETORSHIP:- A sole proprietorship is a business which is owned and operated by one person. The owner of a sole proprietorship only needs to obtain the appropriate licenses for the business to begin operations. The sole proprietorship is the simplest business organization and, therefore, the most widely used legal structure for small businesses. The sole proprietorship controls all business assets. The owner receives all business profits and or losses and reports them on his personal tax return.  Therefore, an owner undertakes the risks of the business to the extent of all of his or her assets, whether used in the business or used personally.

PARTNERSHIP:- A partnership exists when two or more people join together to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. Although a partnership agreement is not a legal requirement, written articles of partnership are suggested in order to avoid disputes as the firm grows. The agreement should define each partner’s contributions in terms of, money, assets and management. Specifically, the agreement should also define a partner’s share of the profit and loss.

CORPORATION:- A corporation is an association of individuals with a separate legal existence. The corporation is recognized by law as being a distinct legal entity apart from the individuals who own it. Think of a corporation as a separate person that can enter into agreements, sue, be sued, and has an unlimited life as opposed to a sole proprietorship or partnership which may have limited life by agreement or by the lives of their owners. The corporation is formed by the authority of the state government where the business is located.

CONCLUSION:- The decision as to the best entity structure for a Landscape business to be organized can be complex.  Legal liability, tax minimization strategies as well as owner flexibility all need to be considered. The above discussion gives the Landscape Professional some basic framework to have a more lengthy discussion with a attorney or other professional that specializes in this type of work.