2. Entity Legal Liability Issues  Unlimited Liability—lawsuits can attack the entity as well as the owners’ personal assets  Schedule C and Schedule F proprietorships  General partnerships  The Middle Road—Limited Partnerships (LPs)  Limited partners are not allowed to participate in management decision-making process, and cannot be compelled to make any additional payments to partnership or creditors  LPs therefore have no liability beyond their investments in the partnership  General partners make all management decisions and bear unlimited liability for partnership losses.

3. Entity Legal Liability Issues--Continued  Limited Liability—The Best Possible Situation  Protected personally from lawsuits so long as professional does not commit malfeasance themselves  Negligence or Fraud  Therefore need malpractice insurance  Limited Liability Entities:  C Corporation  S Corporation  LLP (limited liability partnership-still liable for general debts)  LLC (limited liability company-no liability beyond initial investments)

4. Other Entity Choice Issues  C Corporation is best for fringe benefits, executive compensation and capital formation  Issue stock to the public  Worst for double tax for dividends and liquidations  S Corporation is the best for small conduit entities wishing to avoid the SE tax  LLC is probably the most flexible entity that provides limited liability protection  Can have a single person LLC instead of a sole proprietorship  But still may have to personally guarantee the debt!