How Much Corporate Structure Does Your Cigar Business Really Need?

In the end, what matters most for your cigar business are the products and services you provide. How you maintain the operation that delivers these products and services is another matter. A well-structured company can keep things running smoothly, easing your transactions with vendors, clients, and staff, protecting you in case of liability, keeping your taxes manageable, and ensuring healthy profit margins.

But the optimal corporate structure for one type of cigar business won’t be for another, whether because they’re working in different areas of the industry, or they’re different sizes, or any number of factors. The key is to find the corporate structure that’s best for your unique business and situation. Here’s an overview of some of the more common ways cigar businesses are structured: 

Sole Proprietorship

Sole proprietorships, where one individual owns and operates the business as they see fit, are the most basic type of business structure and by far the most popular structure for smaller cigar businesses.

The simplicity of the sole proprietorship has its advantages, but the downside is that it can expose owners to personal liability — a particular concern in the cigar industry, given the product these businesses grow, manufacture, or sell. If a customer files a lawsuit claiming health issues from a product, the sole proprietor’s personal assets could be at risk.

Partnership

Two or more individuals can share ownership of a business and associated responsibilities. Partnerships can include silent investors or be composed entirely of equal partnerships among numerous partners who share management responsibilities and the liabilities that come with running a cigar business. 

Limited Liability Company (LLC)

An LLC structure has some of the benefits of partnerships and corporations (below). A cigar business owner might choose this option if they want to shield personal assets while dealing with fewer formalities and requirements than corporations.

Corporation

Corporations are single entities owned by multiple shareholders, and they provide the strongest personal liability protection. If you want to raise capital through stock issuance or maintain your business’s existence beyond the original owners, forming a corporation might be the best solution. However, corporations require extensive record-keeping and reporting to keep them aligned with local, state, and federal laws.

There are two main types of corporations:

• C Corporation: Fewer restrictions on growth and stock issuance can make the C Corp an appealing choice. One downside is that profits are “double taxed,” first at the corporate level and again after distributions to shareholders.
• S Corporation: Profits and losses pass directly to shareholders’ personal tax returns. This allows the business to avoid double taxation but limits both the type of stock issuances and the number of stakeholders.

Some cigar businesses don’t issue stocks until they reach millions in revenue, while others leverage their corporation status for early growth.

Understanding the details of different corporate structures and each one’s pros and cons can take time and a bit of study. If you take away one thing from the short overview here, it’s that the structure of your cigar business can have a real-world impact on your assets and legal liability down the line.

Venerable Law can assess your needs and help you select the optimal structure for your growing business. Reach out today online or by calling 813-680-4530 to learn more.