What type of entity should you and your partner(s) use for your start-up brewery: a partnership, corporation or limited liability company (LLC)? Here are some general considerations to tailor to your own circumstances.
Entity. A partnership is usually not an option as it would not limit your personal exposure to creditors and claims. An LLC is preferable to a corporation as it has a less rigid ownership and management structure.
Organizational Considerations. To form your business, you will need to determine:
Governance. A corporation has shareholders, directors and officers. An LLC is less formal, being managed by its members or a manager (who can be a member as well). If there is more than one shareholder or owner, you will want an agreement covering such things as management, restrictions on ownership transfers, buy-out arrangements, and possible employment agreements.
Taxes. The tax laws are complicated, and the new Federal tax law has made entity selection decisions even harder. Consult a tax lawyer or accountant. Whether you use a corporation or an LLC, it should have its own federal tax identification number (not needed for a single member LLC without employees), accounting records, bank account and appropriate insurance. The tax rate for regular corporations (“C” corp.) was reduced to 21%; however, it may still be beneficial to use a “pass through entity,” either an “S” corp. or an LLC. The owners may be eligible to deduct 20% of their pass-through income. These tax considerations may be affected by various issues such as how much income the entity makes, and how much money must be retained in the business for capital equipment and other purposes. State and local tax and reporting requirements also must be considered.
Final Piece of Advice. Make sure to keep proper company records, and keep your personal and company funds separate. If you fail to do so, creditors may be able to come after you personally.
It also is desirable to look into product liability insurance coverage because you can save significant legal fee costs if the insurance company defends a claim against your company.