Columns

The Business Side

April 5, 2000
/ Print / Reprints /
ShareMore
/ Text Size+
As we start the new millennium, this is a good time to stop and look at some of the basics that any business is built upon. The first decision you make when considering to go into business is what type of business structure you are going to operate under. Even if you are currently in business, you can still change to a business structure that better suits your practice. Your choice of structure is a tradeoff of three basic items: the amount of control you have over the company, the amount of liability you pass along to you and your family, and what kind of tax situation you find yourself in at the end of each year. First, we will look at all the major types of structures, and in the next column we will explore the advantages and disadvantages for different sized companies and the reasons companies use the structures they do.

Sole Proprietorship

Many small survey companies fall under this category because of the simplicity it affords the new business owner. Sole proprietors need to register with the board of registration if not operating under their own names. Sole proprietors must also keep complete records for their federal tax returns. At tax time, they need to file Schedule C (Profit or Loss from a Business or Profession) as an attachment to IRS Form 1040. They can move money into and out of the business whenever it best suits their needs. Since the sole proprietor is self-employed, he or she must pay both the employer and employee share of social security. Because of the 1986 tax law rates, a sole proprietorship never reaches the tax rates of a corporation. The decision to incorporate is normally based on other reasons, such as liability.

Partnerships

The basic structure of the partnership has the same features as the sole proprietor, but has one more owner. This relationship needs to have some form of written agreement to work smoothly. While this is not a requirement of the law, it makes good business sense. These agreements can include items the partners think will make the arrangement work. Partners do not take a salary but draw money against their ultimate share of profits at the end of each tax year. Estimated taxes must be paid during the year to the federal and state governments, usually quarterly. All profits must be divided at the end of the tax year-sometimes a disadvantage. The partnership is a good way to add a business partner with a limited amount of paperwork and legal fees. Most partnerships are dissolved at the death of one of the partners.

Limited Partnerships

A limited partnership has general partners and limited partners. Most of these types of arrangements are generally asset-based and do not fit the business model used in the professional practice. The reason a limited partnership is used, in most cases, is to raise capital assets for ventures such as real estate investments where the limited partners want liability protection limited to the amount of their investment. The legal document used in limited partnership can be cumbersome, and many end in legal action against other partners.

Corporations

Many people assume businesses are corporations, while just the opposite is true. Just a small percentage of companies are incorporated. Incorporating can be time-consuming and costly, including legal and recording fees. The most important single consideration for most stockholders in a corporation is to limit the liability that can be passed down from stock ownership to the individual. The corporation is required to meet certain rules such as having elected officers, having an annual meeting, and keeping a minute book containing minutes of all actions of the officers and directors. If you are not motivated to play by the rules, maybe you would be better off with some other business structure.

It is easy in a corporation to add additional owners. The act of selling stock shares to new partners is a simple task. The corporation also pays 100 percent of taxes for owners and employees. The first half is withheld from the owner/employee in his or her paycheck. The second half of social security is paid by the corporation. Many of the payments for insurance are a direct tax deduction for the corporation, along with leases and many other business expenses. The corporation can retain money in the company for operation purposes at the end of the tax year. If an owner is approaching retirement, he or she can dispose of shares of stock gradually. In some states, ownership in a professional corporation is limited to dually registered professionals.

S Corporation

An S Corporation gives limited protection to the owners from liability claims, but does not double tax income like a regular corporation. While the S Corporation seems like the best of both worlds, it brings with it many complex rules and regulations. Many startup businesses choose this structure because startup losses can be directly passed along to the individual owners as a personal tax shelter. This business structure requires tax consulting from an attorney or accountant. There are very strict rules dealing with switching back and forth between different types of corporations that apply to the S Corporation.

There is a book you may want to get entitled, Small Business Advisor, 2nd edition. This book contains a wealth of information about small businesses, and sells for $24.95. The ISBN number is 0-471-33222-4.

Many productive things are happening in surveying. Many four-year programs are turning out great graduates. Technology allows never-before dreamed of field accuracy while surveying. Most firms are busy with work. Great publications bring both technical and business information to the technician and the professional. Better wages are being paid to employees at all levels. I think we are going to make it big; hang on for the ride!

Rules for Any Business Structure

  • Keep good records. There are many good, reasonably-priced accounting software packages available.
  • Keep your payroll taxes and required payments up-to-date. This includes business licenses and sales tax if you sell taxable products.
  • Keep the collection of accounts current. It is much easier to manage a company if you do not have to borrow money.
  • Do not let clients talk you into taking projects where you cannot make a profit.
  • Know your overhead rate and use it to price jobs.
  • Manage by time not money.
  • Remember your company is your employees.
  • Buy technology instead of hiring people.
  • Compare business ideas with other professionals.
  • Become active in your local, state and national professional societies.

Did you enjoy this article? Click here to subscribe to POB

Recent Articles by Milton Denny, PLS

You must login or register in order to post a comment.

Multimedia

Videos

Image Galleries

HxGN Live

More than 3,500 attendees from more than 70 countries attended HxGN Live, the annual Hexagon AB user conference, at the MGM Grand Hotel & Casino in Las Vegas on June 3-6. About 450 keynotes and panel discussions were held, and several companies from around the world exhibited their geospatial products. Here are a few snapshots from the event.

9/30/14 2:00 pm EDT

Technical Workflows on the Job Site Using 3D Laser Scanning

The purpose of this webinar is to dig into different laser scanning workflows and techniques.

POB

POB September 2014

2014 September

In this September 2014 issue of POB, we take a look at a book that reveals how a rare-map dealer made millions stealing ancient maps. Also, discover the secrets of a 21st-century surveyor and how technology enables small surveying businesses to ease growing pains and maximize their potential.

Table Of Contents Subscribe

Surveying Career

Would you recommend surveying as a career to a current college student?
View Results Poll Archive

Point of Beginning Store

M:\General Shared\__AEC Store Katie Z\AEC Store\Images\POB\epubsite\Statues-pic-large.gif
Surveyor Statues

The perfect gift or award for any special occasion.

More Products

Clear Seas Research

Clear Seas ResearchWith access to over one million professionals and more than 60 industry-specific publications, Clear Seas Research offers relevant insights from those who know your industry best. Let us customize a market research solution that exceeds your marketing goals.

Geo Locator

Buyers Guide

The #1 buyers' guide for land surveyors and geomatics professionals. Search listings for software and equipment manufacturers, equipment dealers and professional services. CLICK HERE to view GeoLocator.

STAY CONNECTED

Facebook logo Twitter logo  LinkedIn logo  YouTube logoRPLS small logo

Google +