It’s just paper. All I own is a pickup truck and a little Walmart stock.

………………………………..Sam Walton

Evaluation CriteriaTax considerationLiability exposureStart-up and

future capital requirement

ControlManagerial abilityBusiness goalsManagement

succession plansCost of formation

Sole Proprietorship

A business owned and managed by one individual; the business and the owner are one and the same in the eyes of the law

Sole ProprietorshipAdvantagesSimple to createLeast costly formProfit incentiveTotal decision-

makingNo special legal

restrictionsEasy to

discontinue

Sole ProprietorshipDisadvantagesUnlimited personal

liabilityLimited skills and

abilitiesFeelings of isolationLimited access to

capitalLack of continuity of

business

PartnershipAn association of two or more people who co-own a business for the purpose of making a profit

A partnership agreement or the Uniform Partnership ActA partnership agreement or the Uniform Partnership Act

PartnershipAdvantagesEasy to establishComplementary skillsDivision of profitsLarger pool of capitalAbility to attract limited

partnersLittle governmental

regulationFlexibilityTaxation

PartnershipDisadvantagesUnlimited liability of

at least oneDifficulty in

disposing of interestLack of continuityPotential for

personality and authority conflicts

Partners bound by law of agency

Special PartnershipsLimited partnership-composed of at

least one general partner and at least one limited partner

Limited liability partnership-a special type of limited partnership, in which all partners are limited partners

Master limited partnership-a partnership whose shares are traded on stock exchanges, just like corporations

CorporationsA separate legal entity apart from its

owners which receives the right to exist from the state in which in which it is incorporated

DomesticForeignAlienPublicly heldClosely held

CorporationsCertificate of IncorporationNameStatement of purposeTime horizonNames and addresses of incorporatorsPlace of businessCapital stock authorization’Capital required at time of incorporationProvisions for preemptive rightsRestrictions on transfering sharesNames and addresses of officersBy-laws

CorporationsAdvantagesLimited liability

of stockholdersAbility to attract

capitalAbility to

continue indefinitely

Transferable ownership

CorporationsDisadvantagesCost and time in

incorporatingDouble taxationPotential for

diminished incentivesLegal requirements

and red tapePotential loss of

control

An S CorporationA corporation that retains the legal

characteristics of a regular C corporation but has the advantage of being taxed as a partnership if it meets certain criteria:

Domestic US corporation No nonresident alien stockholder One class of common stock Limit shareholders No more than 100 shareholders Less than 25% of gross revenues passive

S CorporationAdvantagesAll of advantages of a regular C

corporationSingle taxationAvoids tax on appreciation of asset

soldPay SSS for employeesDifferent lines of businesses as

subsidiaries, simpler tax filing

S CorporationHighly profitable service companies

with large number of shareholders for whom profits are compensation or retirement benefits

Fast-growing companies that must retain earnings to finance growth

Corporations in which the loss of benefits exceed tax savings

Corporations with sizable net operating losses

S CorporationLiquidatingPay all taxes and debtsObtain written approval of shareholders

to dissolve companyFile statement of intent to dissolve with

secretary of stateDistribute all remaining assets

Limited Liability CompanyA relatively new form of ownership that, like

an S corporation, is a cross between a partnership and a corporation; it is not subject to many of the restrictions imposed on S corporations; only 2 of the following:

Limited liabilityContinuity of lifeFree transferability of interestCentralized management

Limited Liability CorporationArticles of organization-name and address,

method of management, duration, names and addresses of each organizer

Operating agreement-no more than 2 of: limited liability, continuity of life, free transferability of interest, centralized

management

Limited Liability CorporationLimited personal liabilityNo limit on number of shareholdersNo ban on nonresident alienNo restriction on a member’s ability to

manage the companyAvoids double taxationFlexibility to divide income as owners see

fitNot subject to self-employment tax except

for managing member

Professional Corporation-lawyers, accountants, doctors, dentists, etc.

Joint Venture-partnership formed for a specific purpose