choosing the best business structure. choosing the legal structure of your business sole...
TRANSCRIPT
Choosing the Best Business Structure
Choosing the Legal Structure of Your Business
• Sole Proprietorship• Partnership• Limited Liability Company• Corporation• Franchise
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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?
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Choosing the Best Business Structure
Choice based on:
Less Commonly Considered Concerns• Raising Money• Regulations – Ongoing Operation• Continuity• Flexibility• Record Keeping
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Choosing the Best Business Structure
Sole ProprietorshipDefinition
A sole proprietorship is a business owned and operated by one person for profit.
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Choosing the Best Business Structure
Sole ProprietorshipCharacteristics
• 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.
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Choosing the Best Business Structure
Formation of Sole ProprietorshipEasiest 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).
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Choosing the Best Business Structure
Types of Partnerships
• General Partnership• Limited Partnership
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Choosing the Best Business Structure
General PartnershipDefinition
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.
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Choosing the Best Business Structure
Limited PartnershipDefinition
A limited partnership has one or more partners who have limited liability and no rights of
management.
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Choosing the Best Business Structure
PartnershipsCharacteristics
• Easy to set up and operate.• Profits are taxed once.• Legal liability
• Unlimited for general partners.• Limited for limited partners
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Choosing the Best Business Structure
PartnershipsCharacteristics (continued)
• Partnership terminates upon death or withdrawal of partner, unless there is a partnership agreement to the contrary.
• Easy to liquidate.
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Choosing the Best Business Structure
Formation of General PartnershipEasy to Set Up and Operate
• No formal process required.• Obtain Employer Identification Number.• Obtain all necessary federal, state, and local
licenses and permits.
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Choosing the Best Business Structure
Formation of General PartnershipEasy to Set Up and Operate (continued)
• Register Assumed Name Certificate, if necessary.
• Partnership Agreement (optional, but highly recommended).
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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.
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Choosing the Best Business Structure
Limited Liability CompanyDefinition
• 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.
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Choosing the Best Business Structure
Limited Liability CompanyCharacteristics
• Profits are taxed once.• Limited legal liability.• Business may or may not terminate upon death
or withdrawal of member, depending upon operating agreement.
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Choosing the Best Business Structure
Limited Liability CompanyCharacteristics (continued)
• Moderately easy to liquidate.• Moderately easy to set up and operate. Some
formalities are required.
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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.
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Choosing the Best Business Structure
CorporationDefinition
Formed under state or federal law. Legally treated as an artificial person, distinct from the
individuals who own it.
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Choosing the Best Business Structure
Organization of CorporationCorporate 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.
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Choosing the Best Business Structure
CorporationsTypes
• C Corporation• S Corporation• Professional Corporation
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Choosing the Best Business Structure
CorporationsCharacteristics
• 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.
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Choosing the Best Business Structure
Formation of CorporationMost 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.
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Choosing the Best Business Structure