 Growing up, each year my parents would share a few Christmas Stories with us on Christmas Eve lit only by candlelight and Christmas Tree light. After the stories, we would pray and unwrap one present – a new pair of pajamas. With our new pajamas on, we would jump into bed and my parents would come to our bedroom door with a candle in hand and sing a few Christmas carols to us as we fell asleep to dreams of the wonders that waited for us in the morning.
As I have grown up, I have forgotten the unwrapped presents but the memories of those traditions of Christmas Eve stories and being sung to by my parents bring tears of happy memories to my eyes still. One of those stories that has stuck with me through the years is a story from 1966 by Dina Donohue titled, “Trouble at the Inn”. May it bring a smile to your face and the Christmas Spirit to your heart. “For years now, whenever Christmas pageants are talked about in a certain little town in the Midwest, someone is sure to mention the name of Wallace Purling. Wally's performance in one annual production of the Nativity play has slipped into the realm of legend. But the old-timers who were in the audience that night never tire of recalling exactly what happened. Wally was nine that year and in the second grade, though he should have been in the fourth. Most people in town knew that he had difficulty keeping up. He was big and awkward, slow in movement and mind. Still, Wally was well liked by the other children in his class, all of whom were smaller than he, though the boys had trouble hiding their irritation when Wally would ask to play ball with them or any game, for that matter, in which winning was important. They'd find a way to keep him out, but Wally would hang around anyway—not sulking, just hoping. He was a helpful boy, always willing and smiling, and the protector, paradoxically, of the underdog. If the older boys chased the younger ones away, it would be Wally who'd say, "Can't they stay? They're no bother." Wally fancied the idea of being a shepherd in the Christmas pageant, but the play's director, Miss Lumbard, assigned him a more important role. After all, she reasoned, the innkeeper did not have too many lines, and Wally's size would make his refusal of lodging to Joseph more forceful. And so it happened that the usual large, partisan audience gathered for the town's yearly extravaganza of crooks and creches, of beards, crowns, halos and a whole stageful of squeaky voices. No one on stage or off was more caught up in the magic of the night than Wallace Purling. They said later that he stood in the wings and watched the performance with such fascination that Miss Lumbard had to make sure he didn't wander onstage before his cue. Then the time came when Joseph appeared, slowly, tenderly guiding Mary to the door of the inn. Joseph knocked hard on the wooden door set into the painted backdrop. Wally the innkeeper was there, waiting. "What do you want?" Wally said, swinging the door open with a brusque gesture. "We seek lodging." "Seek it elsewhere." Wally spoke vigorously. "The inn is filled." "Sir, we have asked everywhere in vain. We have traveled far and are very weary." "There is no room in this inn for you." Wally looked properly stern. "Please, good innkeeper, this is my wife, Mary. She is heavy with child and needs a place to rest. Surely you must have some small corner for her. She is so tired." Now, for the first time, the innkeeper relaxed his stiff stance and looked down at Mary. With that, there was a long pause, long enough to make the audience a bit tense with embarrassment. "No! Begone!" the prompter whispered. "No!" Wally repeated automatically. "Begone!" Joseph sadly placed his arm around Mary and Mary laid her head upon her husband's shoulder and the two of them started to move away. The innkeeper did not return inside his inn, however. Wally stood there in the doorway, watching the forlorn couple. His mouth was open, his brow creased with concern, his eyes filling unmistakably with tears. And suddenly this Christmas pageant became different from all others. "Don't go, Joseph," Wally called out. "Bring Mary back." And Wallace Purling's face grew into a bright smile. "You can have my room." Some people in town thought that the pageant had been ruined. Yet there were others—many, many others—who considered it the most Christmas of all Christmas pageants they had ever seen.” To each and everyone of you, I wish you a heartfelt Merry Christmas!
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 Partnerships have been around a long time. When a business has two or more owners, they can’t run as a sole proprietor. The law defaults them to a partnership in the absence of another entity selection. Any legal business entity can be a partner in a partnership (Individual, LLC, Corporation, etc.)
Every partnership should have articles of organization and an operating/partnership agreement in place and many States require both to register. Advantages of partnerships include relative ease of formation, additional resources (more minds and wallets at work), pass-through taxation and deductible losses, and no formal termination or dissolution. Disadvantages include unlimited liability of general partners, issues with the continuity of the business (death or bankruptcy of a partner may terminate the partnership), payroll taxes on profits allocated to general partners and the need for trust and understanding between partners. Partnerships come in different forms. There are generally two types of partnerships, general and limited partnerships. A general partnership is made up of owners who are each fully liable for the liabilities of the partnership. This is essentially the same a sole proprietorship but you have two or more minds running the business. Partners in a general partnership are called general partners and they each own a percentage interest of the profits and losses and assets and capital of the business. Every partnership must have at least one general partner. General partners are normally involved in the day to day operations of the business. Profits allocated to general partners are normally subject to self-employment taxes. A limited partnership is made up at least one general partner and limited partners. General partners were described above. Limited partners do not participate in the operation of the partnership but have merely invested in a share of the profits and losses and assets and capital of the partnership. In exchange for not participating in the operation of the partnership, their liability is limited to the amount of their investment in the partnership. While partnerships have been sent back stage while the LLC has taken the spotlight, they are still useful and beneficial in business. Famous partnerships have included Warner Brothers, McDonald’s (pre-Ray Kroc), Hewlett Packard, The Wright Brothers, and Scrooge and Marley. After experiencing growth, many partnerships will choose a different entity. While not a business entity, marriages are also forms of partnerships and require a legal termination (divorce) if the partnership wishes to terminate. Today, partnerships are often used where multiple businesses join together as partners for a project. Investment firms also create limited partnerships around an investment idea and investors purchase a limited interest  Let’s take a look at the Limited Liability Company or LLC for our next choice of business entity. Each State has setup its own version of a Limited Liability Company statute. This means that a State will grant you the opportunity to operate as an LLC which is a separate legal entity, different than yourself. You agree to identify as and hold your company out to the public as an LLC and in return the State will give you as the owner limited personal liability protection. Sole Proprietors have unlimited liability for their business. An LLC entity limits that liability to the assets of the company and builds a wall, or a “veil” as it is sometimes called, which prevents a creditor from going after your personal assets thereby limiting the personal liability of the owner. (Of course many creditors require you to personally guarantee a loan which allows them to go after your personal assets.) The limited liability also helps for other types of liability protection too.
There are three types of LLCs. The owners of an LLC are called members. The first type is a single member LLC. This is an LLC with only one member. It is a separate legal entity as granted by the State but for tax purposes it is a “disregarded entity” which basically means it will be treated as a sole proprietorship for tax purposes. A single member LLC is then essentially a sole proprietorship with limited liability protection. The second type of LLC is a multi-member LLC. This is an LLC with two or more members. It is a separate legal entity as granted by the State but for tax purposes is treated as a partnership. (We will talk about partnerships later.) Each member has limited liability. The third type of LLC is a Benefit LLC or BLLC. Not all States offer this form of LLC. It can be a single member or multi-member LLC but it has an additional responsibility to report to the public its social responsibility or company citizenship. The State will grant the separate legal entity and recognize that the purpose of this LLC is to focus on people and the planet in addition to profit. Their business purpose includes consideration of non-financial stakeholders as well as the financial interests of the members. The state grants legal protection for “doing good” even if it costs the members money. There is no tax advantage for registering a BLLC. It is treated as a single member or multi-member LLC for tax purposes. If your business mission includes being socially responsible and improving the planet and the people who inhabit it in addition to making a profit, you may want to consider it. It requires you to annually report to the public on your activities and social good as it pertains to your mission. The BLLC entity allows the public to know that your business mission goes beyond profit motivations. The primary benefit of an LLC is the limited personal liability it provides. They are relatively easy to setup and have less paperwork than corporations do. LLCs do not pay taxes. Profits are reported on the owners’ personal returns and the owners are responsible for the income taxes (pass-through taxation). They also have flexible ownership rules, management structure and profit distributions. They are the most common form of business entity after sole proprietorships. As a separate legal entity, it can be sold or transferred. Some of the disadvantages include dissolution of the entity for tax purposes if members leave the LLC, and profits are still subject to self-employment taxes if the member participated in the business. There are some administrative requirements that exist that sole proprietors do not have to follow. There are also additional registration costs and possible additional tax preparation fees if a separate return is required. If the LLC is slow to file its tax return, the members have to wait to file their individual returns too. To register a LLC, articles of organization must be filed with the State and fees paid. These articles include the name, address, business purpose and duration of operation. If there is more than one member or you intend to add members in the future, it is very wise to also create an operating agreement for the LLC. An operating agreement outlines what you will do in certain situations such as a member leaving or a new member coming in. Having an operating agreement eliminates a lot of conflict and provides answers to questions when certain events occur. You may want to consult your attorney in setting up an LLC and drafting an operating agreement. I operated my side business as a sole proprietor for many years. Once I made it my full-time business, I setup a single-member LLC to get the greater benefits an LLC provides |
PurposeThis blog allows you to experience the raw, gut wrenching drama of human conflict through accounting in each of its three stages: preparing to do battle, the thrill of victory and the agony of defeat. Archives
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