Is it time to revisit your business formation?

As your pharmacy business grows and changes, you may find that you need to change the legal entity in which you operate. Please note we are not accountants or attorneys. Thus, we strongly recommend that you seek professional advice before deciding if and when you need a change. The following are simple definitions to get you started.

Proprietorship

By definition, a proprietorship is individual ownership d/b/a (doing business as). A proprietorship requires the least legal assistance in formation and is the least expensive structure to maintain. There is one drawback. Any liability associated with your business becomes your personal liability.

C-Corporation

A C-Corporation is the most common legal entity for fairly substantial size corporations (multiple stockholders). It provides insulation from personal liability except in cases where the principal owner has provided personal guarantees. The corporation files income taxes and is taxed on company profits. All employees, including the principal owner, must be salaried in order to take money from the company. Otherwise, all revenue going to management and shareholders would be considered dividend income subject to double taxation (first to the company and then to the individuals receiving dividend income).

S-Corporation

An S-Corporation has the same corporate characteristics, regarding liability issues, as the C-Corporation. But it functions like a proprietorship, where income distribution is concerned. The "S-Corp" is required to file a corporate tax return; however, income (or losses) flow directly through to the shareholders, on a pro-rated basis, as personal income (or loss). Thus, the

corporation itself is not taxed.

Limited Liability Corporation or LLC

Instead of stockholders, the LLC has members. Its characteristics are similar to that of a partnership; however, it may have a bit more insulation from individual liabilities for its manager.

Partnership

A Partnership is similar to an LLC, in that it has a general partner (active in the business) and may contain passive investors.

There is some flexibility in your business structure selection. For example, you can go from operating as a proprietorship to operating as a corporation. There are also mechanisms that will allow you to elect to change from a C-Corporation to an S-Corporation, or the reverse. Generally, you can only change your mind one time. Once again, we encourage you to seek

professional help in determining which option is best for you.