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Minimize tax exposure for a new venture

You have $4.6 million to get your venture off the ground and a year before you open your doors. As the tax research and planning expert, it is your task to ensure your company is set up to minimize your tax exposure. The business will be registered in the city and state in which you live.

1. Briefly describe your new business (name and what it does).
2. Discuss how you will form your corporation and how you will comply with specific regulations in your state (note the need for research here).
3. Determine the most appropriate capital structure for minimal tax exposure.
4. Discuss the tax planning considerations you must take into account after the first year (when you are actually open for business).
5. Determine how non-liquidating distributions will be addressed.
6. Cite at least two (2) tax research sources.

Solution Preview

Business overview:

The name of the business is Smart Stores Limited and is a retail establishment. Smart Stores deals in a variety of goods and offers customers one stop shop for their shopping needs. Smart Stores offers customers a wide range of merchandise lines from which to choose from at a fair price. Smart Stores is a general merchandise store that sells general goods from a fixed point of sales location.

Smart Stores carries a wide range of products such as grocery, general merchandise, furniture and clothing. Smart Stores will aims at achieving cost efficiency operations so at to attract customers through its low pricing strategy. The business also has a policy to achieve customer satisfaction by providing the best customer service thus ensuring that a customer's shopping experience is a good one.

Smart Stores is a self service store and also the business offers delivery whereby the customer pays delivery cost. Related products within the store are placed together and the store will also include a pharmacy and baked products section where customers can buy fresh baked products. Additional services offered by the business include alterations and gift wrapping. Stores business divisions include marketing, finance, and operations. Operations carried out include warehousing and shipping, store operations, and maintenance.

Forming the corporation:

When forming a corporation it is important for the investor to reduce the setting up cost and also lower taxes. The first step in forming a corporation is choosing a business name and checking whether the name is available. The law provides that the corporation's name must not be misleading to the public and that the name must end with the words "Limited liability Company" or the abbreviation LLC. Once the name is confirmed as available the next step required in forming the corporation is appointing directors. Citizen Media Law Project (2011) provides that in California a corporation must have a minimum of three directors but when the number of shareholders is less than three California law allows the number of directors to be equal or more than the number of shareholders. Since I am the only shareholder then the number of directors within the company is one. In relation to director's residence and age requirements California does not have provisions stating where a director must reside neither does is have age requirements.

The next requirement in forming a corporation is preparing and filing of Articles of Organization. The Articles contains the name of the company, business purpose names and addresses of initial members and the LLC's organizer and also the expected management structure. Articles of Organization should provide the name and also address of registered agent. The registered agent is required to be available during normal business hours in order to receive essential business tax and legal documents. The Articles provides the duration of the company and whether the company will continue after a member leaves. The fee incurred in filing the Article of Incorporation is $ 70.

The next requirement is creating the corporation's by laws. This is formed by negotiating and executing an operating agreement. In California a corporation is required to set internal procedures and also to recognize corporate offices and their responsibilities, capital contributions, and also provide how profits and losses will be shared (Citizen Law Media Project, 2011).

The corporation is then required to file a Statement of Information with Secretary of State within 90 days after the corporation filed the Article of Incorporation. Filing fee charged to do so is $ 20. The corporation then holds an organizational meeting and board of directors ...

Solution Summary

The expert minimize tax exposure for a new ventures. The legal form, capital structure and planning is examined.