The Arbitrageur System

Post image for How to Create your own Corporation?

How to incorporated? What is the best corporate structure (LLC, C or S)? These are the first questions that every entrepreneur asked himself before starting any new business.

The corporate tax structure is the first advantage that businesses have. Corporations pay taxes after expenses are met. We individuals pay taxes first, then we meet our expenses. Not to mention that corporate taxes rates are lower than personal tax rates.

What is the Limited Liability Company, LLC?

With a limited liability company (LLC), owners are not personally liable for business debts. A single-member LLC can report company profits or losses on the IRS Schedule C, and any taxes due are paid at the individual tax level; a LLC can also be taxed as a separate entity if you choose to do so, just like a C Corporation.

The most popular state to create a LLC in is the state of Delaware, but I prefer to use the home of record for the state of incorporation because most businesses will be conducted from their home office.

The way to fund a LLC is through owner deposits. Many people suggest that the funding to the business should be via owner structure loans, which are just like any other kind of bank loan, with payable interest, terms, and conditions.

Know that interest paid on owner loans are tax deductible for the business, but at the same time it becomes a taxable income for the owner effectively canceling each other (for tax purposes). Always make an effort to clearly identify owner’s deposits and withdrawals from the business; label and record every financial entry.

What is the (C) Corporation?

Another choice is the C – corporation, which enjoys the benefit of lower tax rates at the risk of double taxation because profits are taxed before distributions are made.

For arbitrage investment strategies the preferred way to incorporate is the (C) corporation ,even at the risk of double taxation.

One of the ways to fund a corporation is through owner structure loans, just like any other kind of bank loan with payable interest, terms, and conditions. Here, taxes are not meaningless. Dividends paid to the owner become taxable income for him. While at the same time, the corporation is paying taxes on any earnings as a separate entity, which in turn becomes a case of double taxation.

A different option to fund a corporation is through capital investment, which is the issuance of shares (stocks) that will give the owner equity in the business. I find this to be the best way to fund the company because after a long period of time (at least a year), all capital gains realized by the owner are considered to be long-term gains and get a lower tax rate. Gains that can be realized by the distribution of dividends or stock buybacks.

A note about taxes:

If you know me, you know that I love this country and wish for everyone to have to pay a million dollars in taxes because it will mean that your income is at least $2,921,960 (based on 2010 figures).

Regardless of the type of corporation you choose or how you decide to fund it, you must open a separate bank account for your business. Pick a strong bank that is close to your home and one that values its customers and provides commercial banking (preferably not the same bank where you have your own personals accounts). Never commingle personal money with business funds.

Always do your best to protect the corporate veil; where the company is solely liable for its own debts and obligations, not its owners.

PS: Many other details and formalities are involved at the time of incorporation, and nothing beats hiring a real and easily accessible attorney and accountant. I personally have both, and I suggest that you do the same.

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November ReportDecember 2014, I am still at 20% risk exposure to the markets, but I started to be more active to set conditions for the new year.

As you already known I share my results with you mainly for three reasons:

  • The Benefit of Full Disclosure
  • Share the Knowledge
  • Track Performance

 Because “no one should talk about investing, if they are not willing to show their actual holdings and performance.”

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Half Year ReportFive years ago when I discover the secret of arbitrage.  I decided to first apply it to my retirement portfolio (Roth IRA) but in a unique way. Today, I am going to report my year on year performance for 2014.

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