Tax Advantages & Disadvantages of Multiple Entity Structures

Business-minded contractors are constantly reviewing and strategically expanding their service offerings and product mix, often entering into new lines of business to stay competitive. While periodically reevaluating your company’s offerings and launching new endeavors can be beneficial to its financial health, it’s the CFM’s responsibility to make sure the underly- ing organizational structure selected is the best suited for the particular circumstances. It’s critical to be aware of the financial and operating implications of selecting one or multiple entity formation options for those new ventures, and furthermore, to understand the tax implications of selected structures.

First and foremost, CFMs must be in concert with the owner’s business strategy and future plans and have a clear under- standing of where the company is heading. It is also crucial that the company’s key managers and employees are aware of the plan and work together to achieve common goals. This requires constant communication regarding management’s goals – both financial and personal.

CFMs must also understand and evaluate the various entity forms and the advantages and disadvantages of each. As your company’s key financial advisor, you need to be able to clearly explain the benefits and pitfalls of the entity structure you are advising to implement.

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