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LLC May be the Wrong Choice Part 1

Inside Small Business | March 12th, 2008

Richard Chapo, Attorney

If you are going to open a business these days, you really need to protect yourself by forming a business entity. Lawsuits are a fact of life and the proper business entity will build a shield between the debts of the business and your personal assets.

Corporations and limited liability companies are the two most popular choices for small businesses. There are numerous differences between the entities, but the lack of record keeping and formalities has made the “LLC” a very popular choice for many small business owners. This choice can, however, lead to problems if only one person owns the entire entity.

To understand the potential problem, we first have to step back and look at the bigger picture. The touted advantages of an LLC are threefold. First, it provides you with asset protection similar to a corporation. Second, it does not require you to go through the formalities of record keeping, meeting and so on as required with a corporation, to wit, it is more informal. Finally, the LLC has the inherent advantage in that it can be taxed as a partnership, which avoids the double taxation problem that exists with a corporation. This last advantage is where we start running into problems.

As you know, the IRS controls the rules and regulations applicable to federal tax law. For tax purposes, the IRS defines a partnership as two or more individuals [or businesses] pursuing a profitable venture. This is also the legal definition. The key thing to focus on is the numeration – two or more. For there to be a partnership for tax purposes, two or more groups have to be involved.

Now, let’s return to our LLC owned by a single person. The advantage of being taxed like a partnership is a big advantage to being an LLC. So, what happens when you file your partnership tax return after your first year of being in business as an LLC?

Part 2 will be published tomorrow.

 

Richard A Chapo, Esq., is the lead attorney and owner of SanDiegoBusinessLawFirm.com. He provides legal services in the fields of business entity formation and internet law to large and small California businesses.

 

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Invention Home and Small Business

Inside Small Business | January 15th, 2008

Russell Williams, President of Invention-Home

Over the past few years, product innovation and the process of inventing have become mainstream in the United States due to the advent of numerous media publications and TV programs covering the topic such as American Inventor, The Donny Deutsch Show, Fore Inventors Only and Everyday Edisons. Today, people from all walks of life are striving for the “next big idea” that can launch or expand businesses or create ongoing royalty revenue streams for every day inventors.

For many inventors, entrepreneurs and small businesses, the process of commercializing inventions can be a daunting task. As a result, many are focusing on product licensing as a means of monetizing their inventions as opposed to developing and marketing the product on their own.

Invention Home has developed a unique and innovative approach for assisting independent inventors and entrepreneurs through the invention and patent process with the ultimate goal of matching and connecting the invention with a company that will license and subsequently develop, manufacture and market the invention while compensating the inventor with an ongoing royalty payment.

Invention Home was founded in 2003 by brothers-in-law Russell Williams and Eric Zalevsky following success in building Eric’s invention called the “Chilly Bone” into a multi-million dollar product line sold worldwide. During the process, they realized the lack of good, quality resource options available to help independent inventors with product licensing. They saw an opportunity to build a reputable and credible company that would help other inventors, while simultaneously “re-inventing” the invention industry itself by creating an innovative and streamlined model for connecting inventors and companies looking for innovation.

As a result, their mission became to create the first nationally recognized marketplace for connecting inventors with companies looking for innovative, new products. Similar to how eBay and Monster.com created the “marketplaces” for consumers in their respective industries, Invention Home has created the marketplace for innovation. Today, they have a growing marketplace that consists of over 3,500 manufacturers and product companies that regularly receive and review new inventions with the ultimate goal of discovering and licensing a new product opportunity.

Invention Home’s core service is to help inventors, entrepreneurs and small businesses with licensing, or with obtaining distribution if the product is fully developed. Rather than charging large up-front fees, Invention-Home receives a percentage of the royalty revenue only if they succeed in licensing the invention. They also offer fee-based services such as patent searches, provisional patent applications and virtual prototype design, as well as utility patent and prototype development referral services, thereby providing inventors with a “one stop shop” experience. For manufacturers and product companies they offer a streamlined and efficient source for finding new and innovative product opportunities available for license or sale.

Russell Williams is President and Co-founder of Invention-Home. He holds a Masters in Management degree from Carnegie Mellon University and a Bachelor of Science degree from West Virginia University. He is an inventor with multiple patents (pending) and an avid believer in creative thinking and product innovation. Inventor information is available at www.inventionhome.com and Manufacturer/Product Company information is available at www.inventionhomeproducts.com.


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