Incorporating in the United States What type of entity and where?

Common Corporate Forms

The Basics: C-Corporation Ownership:  Entity is owned by shareholders, with no minimum number  Accommodates multiple types of stock (i.e., Common or Preferred)  Distributions must be proportionate to stock ownership within each class Liability:  Stockholder’s liability limited to amount of capital contribution  Therefore, protected from corporate creditors Tax Considerations:  Taxed at both the corporate and stockholder level

The Limited Liability Company

The Basics: LLC Most Common for Foreign Investors Ownership:  Instead of Stockholders, LLC ownership is determined by Membership  Members can include individuals, corporations, or foreign entities/individuals  Profits do not need to be distributed according to ownership percentage Liability:  Members enjoy limited liability protection, Liability potential is generally limited by a Member’s investment into the LLC Membership Interests is generally protected from the claims of creditors Advantages:  Not subject to “double taxation” like a C-Corporation  Flexible Corporate Structure (i.e., ownership, agreements, distributions)  Less corporate formalities No requirement that management be by a board of directors  Available to Foreign Individuals and Entities (unlike other corporate forms)

Businesses That Often use LLCs Real estate ownership entities Businesses with foreign investment Closely held investment companies  Can treat every investor differently Start-up entities with venture capital financing Closely held family businesses Professional firms

Example: Unequal Distribution Real Estate Ventures, LLC Partners agree to Equal Ownership BUT, only Lucas and Juliana actually work the business Nicholas is the “nervous” investor who only invests In a C-Corp, all profits would have to be shared equally in same class But, an LLC Operating Agreement can grant Lucas and Juliana greater percentage in profits than ownership interest LucasJulianaNicholas

Example: LLC Liability Real Estate Ventures, LLC enters into a contract with Harper Properties, Inc. Real Estate Ventures breaches the contract Harper Properties sues Real Estate Ventures for USD$1,000,000 If LLC formalities were followed, Lucas, Juliana and Nicholas need not worry Personal Assets remain protected Note: Real Estate Ventures’ assets are also protected from personal liability of its members.

Other Aspects of an LLC Some states require more than one member for full extent of protection  Example: In Florida, to properly maintain limited liability, an LLC must have at least two members Still protected from company debt in single member LLC But, personal creditor may foreclose upon your interest in a single member LLC if the judgment creditor shows that it’s judgment will not be satisfied within a reasonable amount of time. Subject to self-employment tax for members who are actively involved in management of company  Exception is for rental income, as such income is treated as passive income for real-estate ventures.

Florida or Delaware?

Florida, LLC vs. Delaware, LLC FloridaDelaware State Corporate Income Tax 5.5% of taxable income over $5, % Personal Income tax None2.2% % Franchise Tax NoneYes, based on size. Annual Entity Fee $ Fee$ tax State Sales Tax 6%None Dedicated Business Court Not really.Yes. If you’re buying in Florida, a Florida company probably makes most sense.

Conclusion: What Entity and Where? The Answer:  It depends on your particular circumstances.  BUT, it is not as easy as filing out a form on-line and forgetting about the rest. If you want the full protection of the corporate shield, you must follow ALL corporate formalities. Call or for further information:  Alexander D. Brown, Esq. Office: