Entity Formation and choosing a business structure is perhaps the most important decision a business owner will make. We advise business owners of the proper business structures, with an emphasis on reducing taxpayers tax liabilities and reducing their risk of audit.
The most frequent recommendation we make has to do with transitioning from a Sole Proprietorship or Partnership to an LLC being taxed as an S Corporation. However, with the enormous growth in the cannabis industry coupled with the IRC Section 280E, limiting the deductibility of businesses overhead expenses requires a bit more ingenuity and creativity in structuring a business. Many cannabis companies have two or more partners. Some entities are active in the operation of the business, while others are only investors. This presents more variables to navigate in terms of the right business structure. Some companies, for example dispensary owners more impacted by 280E, may decide on a business structure primarily in response to limitations presented by 280E. Many legal and accounting practitioners recommend that businesses elect to be taxed as C Corporations thus sheltering their shareholders from the impacts of 280E. Often overhead that would ordinarily be nondeductible can be shared between legal and cannabis businesses by simply creating additional businesses to act as management or personnel companies. Contact us to schedule a comprehensive Business Consultation session to determine what Entity Formation is best for your business.
If you are creating a brand new business as a single owner operator you can use these simple steps below to get you started.
NOTE: We advise that you seek legal counsel—especially if you are forming a partnership with other non related people—to help you implement an operating agreement.
Apply for a business name; we highly recommend filing as a Limited Liability Company (LLC). Note: this process varies from state to state but for the State of Oregon the process requires a simple one page document. The LLC has default language that will provide your company some liability protection. If you are organizing your business in a different state other than Oregon, consider LLC University for direction.
Verify that your business name is available by conducting a business name search. Be sure to also check if a business is active or inactive. If it has an inactive status that means the name is available. It is important to note that making minor adjustments such as adding an ‘s’ to pluralize a name or adding a different business entity type such as LLC, LLP, or Inc. etc., to a name that is already taken does not qualify as enough of a distinction to warrant it available for use.
Complete the Articles of Organization. Do not overthink this document. Some of the terminology may seem intimidating but again, this is a simple one page document and is fairly self explanatory. For line by line instructions, click here. Your registration will show up on the business name search approximately five business days after submitting the application.
Apply for a Tax Identification Number (EIN). The IRS offers an easy step by step way of applying for an EIN number online, click here. Be sure to print or save a PDF of the document the IRS provides once you complete the application process. It may take a while for an official hard copy to arrive in the mail.
Open a business bank account. Once the Articles of Organization have been registered with your state you will need your EIN letter and name registry to open a business bank account. This is where many new business owners go wrong. Always establish a separate business bank account to operate your business. In case of a financial audit, recordkeeping will be vitally important. Separating your business banking from your personal banking will legitimize your business. Otherwise the IRS will not consider your business as separate and your business and personal banking will both be subject to audit.
Track your income and expenses. Part of running a business is having adequate recordkeeping. Using a double entry accounting software for your business bookkeeping is perhaps the most important for your business’s record keeping. Accounting software such as QuickBooks Online or Xero allow you to sync your bank activity with these online programs, making bookkeeping very accessible and easy. Because we understand that some people are more skilled with technology than others, we provide bookkeeping setup, training, and support.
Start doing business. Once your business is up and running, contact us. We’ll be happy to offer you additional higher level tax accounting knowledge and information that will help you advance your business.
“I trust Calyx CPA because they have the experience and wisdom of years of support for our industry. We walk a fine line in this industry and I feel comfortable knowing that they’re on my side.”