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Business Structuring 101 - Quick and Easy to Understand

Updated: Oct 11, 2022

You might think, "hey, we are a non-profit company, and therefore we don't have to pay taxes." Unfortunately, that is not the case and has never been the case for cannabis operators.

Even if you are a non-profit, you are generally not allowed non-profit tax exemption. Let us take you through a quick business structuring course in this blog post.

Nonprofit and cooperative

Pros: these companies usually have a lower tax rate or tax benefits. They also have a more inferior operating risk. Moreover, a cooperative system ensures that the corps will be around even if you choose to move on.

Cons: there is a lot of paperwork and, on top of that, a lot of supplementary obedience and regulatory demands. Additionally, particular regulations on campaigning and lobbying only to mention a few.

B corporations

Pros: it is a great commerce instrument, and the company is also more economically resilient that way. There is a lot more attraction to conceivable investors, particularly when employing and enclosing top talents.

Cons: getting a B-corporate authorized is hands down the biggest con for this corporation process. Moreover, these corporates frequently face loftier levels of scrutiny (both internally and externally), and finally, shareholders tend to have more power than in regular C or S corporations.

Now, let's look into the two most common corporates that we see in this business the S and C-corp.

C corporation

Pros: there is a potential reduced individual liability in a C-corporation. However, it is highly appealing to investors. In addition, the tax reform unravels the double taxation issues, plus there are other tax incentives for forming a C-corporation.

Cons: the cons of forming a c corporation are the higher costs for state and federal filing fees and also, an increased amount of paperwork.

S corporation

Pros: usually preferable for product-producing businesses, and that is why it makes sense to ground your company as an S corp. There are no doubled taxes, but there is security from individual liability, and, on top of that, it qualifies for business income deduction. You can have up to one hundred shareholders in an s corporation which also means not as strict accounting rules.

Cons: there are a large number of rules and fees that apply to this corporation. Even though you can have a lot of shareholders, there are some constraints to these. For example, you are required to make a reasonable salary even if your company is not making a profit, this in turn, puts a lot of pressure on the company.

Remember, we are only discussing guidelines of tax implications in this blog post, so if you have further questions or concerns, please feel free to contact us, and we can set up a meeting and guide you further.

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