Business Partnership Pros/Cons suggestions
Submitted by hillbilly on Mon, 05/12/2008 - 15:39.
Hi there fellow BIP,
This might be a tricky one to answer as I am in Canada. I am thinking US/Canada tax laws are similar......
I am trying to determine pros/cons to registering my business as a partnership with my sister. We live about an hour apart. I am trying to determine if we can both operate under the same business, but as semi separate entities. i.e. I operate with my own expenses/income as a component of the entire business and she does that same. Then quarterly or twice a year, our accountant deals with putting it all together. I am thinking we would each use the same accountant for our personal and business tax returns from now on. Can anyone be so kind as to shed some light on this type of business relationship?
Another question I have is, should we have our own financial software for records/tracking, or just leave that up to the accountant? I am thinking we should track things ourselves as well as utilizing an accountant. Can anyone suggest a good financial software for this? Some way to link and Sync data would be a feature most programs would have I would think? Any good budget programs?
I would most appreciate anyones suggestions/tips for this concept.
Thanks so much,
Jeromy
Business Partnership Pros/Cons suggestions
As far as "determine pros/cons to registering my business as a partnership with my sister" I think your accountant would be the best source of advice for this, or a tax Attorney.
You should always have your own financial records and your accountant should have copies. I would recommend Quick Books Pro for managing your business finances. Your accountant should be able to give you a Quick Books template that you would use to manage your business finances.
My accountant gave me a template that he created specifically for my business. I then export all my data and send it to him so he can do my books.
Dan
Thanks Dan
Thanks Dan,
I do need to acquire a accountant. I am waiting for a friend of mine to contact me with her referral. I had hoped someone might be able to shed some light on this for me here, but I understand that its a complicated subject to make comment on.
Regards,
jeromy
My wife and I use an
My wife and I use an accountant for her consulting business. To keep his fees to a minimum, we do all of the tracking/recordkeeping ourselves, and rely on him largely to interpret the maze of Canadian tax rules.
I think accountants should be used as advisors, not bookkeepers.
Moe
I'm no expert on Canadian
I'm no expert on Canadian law so what you suggest might be possible but it doesn't sound very practical. If you run a business then it will make bookkeeping a nightmare to have both partners spending money independently of the other.
Why could you not pool your resources and decide together how much has to be spent and on what?
As far as accounting software goes, I've never used one of the packages such as QuickBooks, although I hear it's very good. Instead, I've always created my own double entry system using a spreadsheet.
Sharing business but limiting liability
Hillbilly,
I'm not 100% sure about Canadian laws but an LLC is a great way to go. I have around 5 LLC's right now and a couple of them have partners in them. What I like about LLCS, at least as far as they're treated by the IRS, is that each partner shares in the gain or the loss of the LLC's business but the liability is limited to the business entity. (this means that you have pretty good protection if your LLC gets sued. It doesn't easily pass through to your personal assets.)
Your LLC can have employees or not. What's important to remember is that outside of the expenses of the LLC the income flows right through to the partners who are then resposible for the tax obligations on it at year's end. If you have offsetting expenses in other areas of your financial life you can mitigate any income gain with those.
At the end of the year your accountant prepares what's called a K-1 for each partner. You then report your gain or loss as it's calculated from the K-1 to the federal tax authorities. (The IRS in my case)
Putting together a company this way keeps all the business expenses in one place but allows you to manage your individual gain separately.
In the U.S. you can also be formed as an LLC but be taxed as an S-Corp. This allows you to maintain your LLC benefits (simplicity, fewer filing regulations, protections) but have more flexibility in paying out distributions to the partners of the LLC.
I used The Company Corporation for my last LLC creation. I paid more but they keep me on my toes with the filings.
A decent Canadian version of that company would be bdc-canada.com