Vending Machine Business Structures Explained

Protect Personal and Professional Profits and Assets with Proper Legal Structure

Before you ever place in order for 10 cases of candy bars, write up a contract with a new location owner or install a shiny new machine in a company break room, you need to tackle all the basic administrative tasks necessary to not only run a vending machine business legally but also potentially save you from losing a lot of money and time. These jobs may not be interesting or fun, but they are important for the continuing health of the company.

What are these jobs that need to be tackled first?

All of this administrative stuff pertains to the legal and financial structure of your vending machine business.

If you fail to adopt a particular structure for your company, it’s just like failing to use your seatbelt when you go out for a drive. There may not be a great risk of having an accident, but if one does occur, the outcome will be a lot worse. This is the same kind of risk you take if you operate a business without proper safety measures in place.

There are several different business structures to choose from, but how do you know what is the best option for your new vending company?

Read on to learn about the various legal structures a business can take and why you should or shouldn’t choose each one for your specific state of affairs.

Sole proprietorship

Many people that own and operate vending machine businesses choose the sole proprietorship structure. They are simple to set up and do not cost a lot of money. The person who owns a sole proprietorship can easily draw all profits directly into their own financial affairs without trouble. This makes this structure attractive, but there are negative aspects as well.

When you are solely responsible for the business, it exists as an adjunct to yourself. This means all legal and financial responsibilities light directly on you and not the company as a separate entity. If the business does not succeed, you will personally be responsible for all credit. Banks or lenders can take your car, house or other property that is in no way associated with the business itself in order to pay back debts if necessary. Also, if you die, the company perishes with you. There is no legal entity to pass on to your children or to even function as a business anymore. Because of the personal risk associated with sole proprietorships, it is not recommended as the best structure for a vending machine company.

Consider the following options for business setup:

C-corporations

C-corporations are one possible business structure to choose for a vending company. These are frequently used for larger companies or ones with the intention of growing to be quite large as the licensing, legal requirements and administrative costs are really too vast to be warranted for simple operation. Some of these requirements include filing “Articles of Incorporation” with your state’s Secretary and registration with both the Department of Taxation and the IRS for a taxpayer identification number.

Likewise, if you only have a small business with a modest amount of profit, you will not appreciate being taxed twice for the same money. Corporations may get lower rates than people who file taxes individually, but both profits and the owners' distributions are taxed. If you do make enough to warranted, the IRS’s bite out of your company should not be excessive.

Although corporations appear to be more complicated and costly, there are positive aspects of forming this business structure as well. No one will be able to access, demand or put a judgment against your personal finances or property or those of anyone you employ. This means that any legal action against your Corporation can only go after the money that belongs to it and not you. Financial help from lending organizations and banks is sometimes easier to come by too.

S-corporations

S-corporations give vending machine business owners another option to consider. The main difference between S-corporations and C-corporations is that the former is considered a “pass-through” entity. Any money earned from the company’s operations is immediately the property of the company owner instead of the company itself. There are also additional tax benefits that can be explored by studying current state and federal tax rules or discussing them with a licensed accountant.

Limited Liability Company

An LLC or Limited Liability Company is one of the more desirable business structures for vending machine companies. Some similarities exist between LLCs and S-corporations, such as the fact that your personal finances and property is protected in the case of legal action and any profits become your personal income rather than company money that needs to be paid a salary and is thus taxed twice.

This business structure is much more user-friendly and flexible then corporations are. If you operate your vending machine company as an LLC, you can divvy up the profits as you see fit instead of following guidelines set out by a board of directors or shareholders. All you need is a general operating agreement to maintain your LLC status.

While the owners of both types of corporations do not need to remit taxes based on un-distributed profits, people who operate as a limited liability company do. The owner and any partners that have a stake in the company will be responsible for their own income taxes.

As mentioned above, the limited liability company or LLC is usually the best option for a vending machine business. It is informal, flexible, scalable and provide sufficient legal and tax protections for the owner, partners and employees. It also protects personal property and finances in case of a civil suit.