Ownership Privileges
The military is known for its many acronyms – some official and some not so much.
One military acronym is RHIP, which stand for “rank has its privilege.” RHIP is the unofficial way to point out when a person accrues – or assumes – some benefit by virtue of their position.
Mel Brooks’ character said it another way in his hilarious movie, History of the World, with this now famous line: “It’s good to be the king.”
In that spirit, here’s a new acronym for small business owners: OHIP, which stands for ownership has its privilege. Here’s a look – sometimes with tongue-in-cheek – at a few ownership privileges.
By virtue of being the owner, you accrue the privilege of working all you want. That means you get to turn the lights on and turn the lights off. If you’re one of the fortunate owners, you have earned the right to work only half-days. And as an added bonus, you get to choose which 12 of the 24.
If you so choose, you can brand the company with your name, which can be pretty rich ego food. But it also helps a plaintiff’s attorney, the one who represents the customer who “slipped and fell” on your business property, to identify at least two of the co-defendants in the lawsuit: the legal entity and the owner.
When doing business with a bank, almost all small business owners are afforded the high honor of getting to sign their name twice on loan documents. Having perfected the “belt and suspenders” approach, banks provide you with this special moment to acquire not only the business assets as collateral for the loan, but also your personal assets as a double guarantee.
But seriously, folks, as Mel Brooks might say, there are a few real ownership privileges. A small business can be structured as a Sub Chapter S Corporation (Sub S), or a Limited Liability Company (LLC), and accrue the benefit of having business income – and losses – pass through to shareholders or members. Personal tax rates are typical lower than corporate rates, and this benefit also avoids the double taxation of dividends.
Additionally, a Sub S and an LLC allow an owner the privilege of doing business in the marketplace while sheltering personal assets from liabilities that may befall the business. The stealth benefit of business ownership is to own the real estate your business operates in and lease it to the legal entity, like a Sub S or LLC.
For example: John Jones owns 21 Maple Blvd. and leases it to John Jones Inc. John gets rental income, tax advantages and market appreciation. Plus, as long as it can be market justified, John can raise the rent instead of giving himself a pay raise or bonus, since taxable rental income is considered passive income, which avoids the payroll tax.
Finally, business owners often have the benefit of coordinating vacations with industry related venues and educational programs, and deduct part, if not all of the expenses.
Write this on a rock… OHIP. But make sure you’re prepared to “enjoy” all the “privileges” of business ownership.
Jim Blasingame
Small Business Expert and host of The Small Business Advocate Show
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