Choosing the Best Business Structure

Choosing the Best Business Structure Lesson Goals: Learn the importance of a legal structure Discuss four basic forms of business structures

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

Questions You Should Ask 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?

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

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

Easiest form of business to set up and operate 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

Formation of Sole Proprietorship No formal process. 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).

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

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.

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.

Easy to set up and operate 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 Terminates upon death or withdrawal of partner, unless there is a partnership agreement to the contrary Easy to liquidate

Formation of General Partnership 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. Register Assumed Name Certificate, if necessary. Partnership Agreement (optional, but highly recommended).

Formation of Limited Partnership 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.

Limited Liability Company 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

Limited Liability Company 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 Moderately easy to liquidate Moderately easy to set up and operate. Some formalities are required

Acquire all the necessary licenses and permits. 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.

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.

Organization of Corporation 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.

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

The most complex form of business to set up and operate 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

Formation of Corporation 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.