Over the weekend NBA fans learned that Miami Heat star Jimmy Butler has become the NBA bubble's favorite barista. In an interview with ESPN's Rachel Nichols, Jimmy Butler informed fans that he has a budding coffee business.
Butler revealed that he has the whole coffee production setup - French press and all. He is charging $20 per cup for his highly coveted coffee. Butler stated that he intends to open a coffee shop after his basketball career. While Butler's coffee may be deemed a bit expensive by some, he certainly has a market for it in the bubble.
If Butler does in fact decide to open a coffee shop after his career, he will have to choose a business entity to form his business. Butler will have to decide if he wants to form a sole proprietorship, a corporation, or a limited liability company. This will be a very important decision for Butler as his decision will have implications on how his business is run, taxed, and whether he can be held personally liable for the debts and obligations of his coffee business. What business entities could Jimmy Butler choose for his coffee business after he retires from basketball?
Butler Could Form a Sole Proprietorship?
Jimmy Butler could establish a sole proprietorship for his coffee business. A sole proprietorship is the easiest business to create as it is an unincorporated business with no formation requirements. Therefore, no separate legal entity is formed. A sole proprietorship consists of one owner. The owner pays personal income tax on the profits earned from the business. Since no separate legal entity is formed, the owner of the sole proprietorship can be held personally liable for the debts and obligation of the business.
Butler Could Form a Corporation?
Jimmy Butler could structure his coffee business as a corporation. Corporations are legal entities created by shareholders when the shareholders file articles of incorporation with their respective state. Each state has its own rules and regulations that govern the corporation formation process. A corporation is separate and distinct from its owners and is considered a legal person under the law. As such, corporations enjoy most of the rights and responsibilities that individuals enjoy. Therefore, corporations may engage in business transactions and are subject to paying taxes.
Most corporations consist of shareholders, a board of directors, officers, and employees. Shareholders are the owners of the corporation. They do not participate in the day-to-day operations of the business. However, shareholders typically have a say in the major decision making concerning the corporation. Shareholders often vote on the election and removal of the board of directors and amendments to the articles of incorporation. The board of directors participate in the day-to-day operations of the corporations such as the hiring and firing of personnel. Employees carryout the business tasks of the corporation.
Structuring a business as a corporation can be beneficial because shareholders enjoy limited liability on the corporation's business dealings. Accordingly, shareholders generally will not be held personally liable for the debts and obligation incurred by the business. However, corporations, specifically c-corporations, are subject to double taxation. This means that corporations are taxed on their profits when earned and taxed again when distributions are made to shareholders. This double taxation can be a bit costly for business owners and as such may not be the most beneficial business entity.
Butler Could Form a Limited Liability Company
Jimmy Butler could structure his coffee business as a limited liability company (LLC). A limited liability company is a business entity that provides a similar structure to corporations without the double taxation. As with corporations, business owners who create limited liability companies are not personally liable for the debts and obligations of the business. However, business owners who form limited liability companies fair better with taxes as LLCs are not subject to double taxation. An LLC is a pass-through entity meaning that all profits and losses pass through the LLC to the business owners. The business owner reports those profits and losses on their personal tax return. To a form a LLC, a business owner must file articles of organization with the state and pay the required fee. Each state has its own rules and regulations governing the formation of LLCs. LLCs consist of members and must have at least one member.
Butler Will Have a Tactical Decision to Make
Jimmy Butler will have a tactical decision to make when he retires and start his coffee business. However, if Butler is as good at making coffee as he is at playing basketball his coffee business will be a success.
This article is intended to be informational and is not legal advice. For legal advice consult a licensed attorney in your jurisdiction.