Choosing the Best Business Structure

Choosing the Legal Structure of Your Business Sole Proprietorship Partnership Limited Liability Company Corporation Franchise SLIDE 1 Choosing the Best Business Structure

Questions You Should Ask How easy is it to set up and operate? What are the tax advantages and disadvantages? What are your potential legal liabilities? What happens to the business if you should die? How easy will it be to liquidate the business? SLIDE 2 Choosing the Best Business Structure

Choice based on: Less Commonly Considered Concerns Raising Money Regulations – Ongoing Operation Continuity Flexibility Record Keeping SLIDE 3 Choosing the Best Business Structure

Sole Proprietorship Definition A sole proprietorship is a business owned and operated by one person for profit. SLIDE 4 Choosing the Best Business Structure

Sole Proprietorship Characteristics Easiest form of business to set up and operate. Profits are taxed only once. Unlimited legal Liabilities. Business ends with death of owner. Easy to liquidate. SLIDE 5 Choosing the Best Business Structure

Formation of Sole Proprietorship Easiest Form of Business to Set Up and Operate No formal process. Obtain all necessary federal, state, and local licenses and permits. Register Assumed Name Certificate (if necessary). Obtain Employer Identification Number (if necessary). SLIDE 6 Choosing the Best Business Structure

Types of Partnerships General Partnership Limited Partnership SLIDE 7 Choosing the Best Business Structure

General Partnership Definition A partnership is any two or more individuals who contribute money, labor, and skill to a business, and who share in its profits, losses, and management. SLIDE 8 Choosing the Best Business Structure

Limited Partnership Definition A limited partnership has one or more partners who have limited liability and no rights of management. SLIDE 9 Choosing the Best Business Structure

Partnerships Characteristics Easy to set up and operate. Profits are taxed once. Legal liability Unlimited for general partners. Limited for limited partners SLIDE 10 Choosing the Best Business Structure

Partnerships Characteristics (continued) Partnership terminates upon death or withdrawal of partner, unless there is a partnership agreement to the contrary. Easy to liquidate. SLIDE 11 Choosing the Best Business Structure

Formation of General Partnership Easy to Set Up and Operate No formal process required. Obtain Employer Identification Number. Obtain all necessary federal, state, and local licenses and permits. SLIDE 12 Choosing the Best Business Structure

Formation of General Partnership Easy to Set Up and Operate (continued) Register Assumed Name Certificate, if necessary. Partnership Agreement (optional, but highly recommended). SLIDE 13 Choosing the Best Business Structure

Formation of Limited Partnership File Certificate of Limited Partnership with Secretary of State or other appropriate agency. Name must contain the words “Limited Partnership.” A written partnership agreement is required. Maintain certain records as required by state law. SLIDE 14 Choosing the Best Business Structure

Limited Liability Company Definition Created by state law. Cross between a partnership and a corporation, with mostly partnership characteristics. Tax advantages of a partnership. Limited liability of a corporation. SLIDE 15 Choosing the Best Business Structure

Limited Liability Company Characteristics Profits are taxed once. Limited legal liability. Business may or may not terminate upon death or withdrawal of member, depending upon operating agreement. SLIDE 16 Choosing the Best Business Structure

Limited Liability Company Characteristics (continued) Moderately easy to liquidate. Moderately easy to set up and operate. Some formalities are required. SLIDE 17 Choosing the Best Business Structure

Formation of LLC Acquire all the necessary licenses and permits. File articles of organization with the Secretary of State. Pay filing fees. Prepare and adopt operating agreement. File all necessary reports with the Secretary of State. SLIDE 18 Choosing the Best Business Structure

Corporation Definition Formed under state or federal law. Legally treated as an artificial person, distinct from the individuals who own it. SLIDE 19 Choosing the Best Business Structure

Organization of Corporation Corporate Structure Shareholders own the corporation through stock ownership. Shareholders elect the Board of Directors Board sets corporate policy. Board elects corporate officers who run the day- to-day operation. SLIDE 20 Choosing the Best Business Structure

Corporations Types C Corporation S Corporation Professional Corporation SLIDE 21 Choosing the Best Business Structure

Corporations Characteristics The most complex form of business to set up and operate. Profits may be subject to double taxation. Limited legal liability. Business continues after death of owner(s). Difficult and expensive to liquidate. SLIDE 22 Choosing the Best Business Structure

Formation of Corporation Most Complex Form of Business to Set Up and Operate File Articles of Incorporation with the Secretary of State. Pay filing and license fees. Prepare and adopt bylaws. Obtain corporate minute book, corporate seal, stock certificates, and other desired supplies. Follow corporate formalities. SLIDE 23 Choosing the Best Business Structure