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Business Law |
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There are several forms of business entities, and choosing the right one for your business depends on several different factors.
Below is a list of the different forms, with general information about each one:
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General Partnership
- Most flexible
- No start up costs
- No formal filing requirements
- Two or more persons needed
- Income tax on profits is paid directly by individual partners
- Any losses are deductible on individual returns
- Must have a Partnership Agreement
- Unlimited liability, i.e., each partner is jointly/severally liable to 3rd parties for the acts of another partner
Limited Partnership
- Very attractive to the individual who wants to be a passive investor.
- Need one general partner and one limited partner
- Limited liability for the limited partner
- Limited partner has no right to management of the partnership
- Same tax ramifications as general partnership
S-Corporation
- Formal filing requirements with Secretary of State
- Has all benefits of being treated as a corporation, but IRS classifies it as partnership
- To make a "S" election, must be "qualified small business corporation"
- No more than 75 shareholders
- Very inflexible. All income and distributions must be made according to stock holdings, not by shareholder agreement.
- Business must be conducted intrastate.
Limited Liability Company
- Filing formalities
- Articles of Organization
- Operating Agreement
- Statutory Agent
- Very flexible.
- Can choose to act as a corporation or a partnership.
- Member-Managed - looks like a partnership.
Members manage the business - still maintain limited liability
- Manager-Managed - looks like a corporation.
Managers manage the business and hire officers to run the day to day operations
- Liability is limited - creditors can go after company property, but not individual
assets of members
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