Forms Of Business & Formation Of Partnerships

Limited liability company (LLC)

-A business formed intended to combine the nontax advantages of corps with the favorable tax treatments of partnerships. -Owned by members who may manage themselves or elect the managers to run the business. -Members have limited liability for the obligations. 1) limited liability advantage 2) management advantage of corp 3) similar s-corp taxation with unlimited shareholders

Limited partnership

-Has one or more general partners and one or more limited partners. -General partners have rights and liabilities similar to partners in a partnership. -Limited partners usually have no liability for the obligations of the limited partnership once they have paid their capital contributions to the limited partnership. -Limited partners have no rights to manage the business. -May elect to be taxed as a partnership or a corporation. -May have a life apart from the owners 1) by using a corporate general partner no human will have unlimited liability for the debts of the business 2) if the limited partnership is taxed like a partnership, losses of the business are deductible on the owners federal income tax returns 3) investors may contribute capital to the business yet avoid unlimited liability and the obligation to manage the business - for a business needing millions of dollars of capital, wanting only few owners to manage the business, and expecting to lose money in its early years

Sole proprietorship

-Has only one owner. -Right to make all management decisions. -All profits are his. -Assumes great liability (liable for all) 1) Formed very easily, and inexpensively. (No formalities necessary) 2) Few people consider the business form decision * has no life apart from its owner - cannot be transferred to another person; buyer of the business must create his own form of business to continue the business. - not a legal entity (owner must sue or be sued, not the business)

Partnership

-Has two or more owners who have the right to make all management decisions. -All profits are shared equally between partners. -Partners assume personal responsibility for all the obligations of the business. -A partners ownership interest is not freely transferable: a purchaser of a partners interest is not a partner of the partnership, unless the other partners agree to admit the purchaser as a partner. 1) no formalities 2) may be formed by default 3) each partners right to manage business 4) deductibility of partnership losses on individual tax returns

Professional corporation

-Identical to a business corporation but allows professional practices to be incorporated (accountants, physicians, dentists) - Managed by a board of directors, unless a statute permits it to be managed like a partnership. -Typically only professionals holding the same type of license to practice a profession may be shareholders of a professional corporation.

Corporation

-Owned by shareholders who elect a board of directors to manage the business. -The board of directors often select officers to run day-to-day affairs of the business. -Ownership and management may be completely separate: no shareholder has the right to manage and no officer or director needs to be a shareholder. -Shareholders have limited liability (even if they become directors or officers) -Directors and officers have no liability -Managers liable only for their actions -The usual corporation is a tax-paying entity for federal income tax purposes. -The corporation pays taxes on their profits. -Shareholders pay fed income tax only when they receive profit dividends or sell their shares for profit. May report investment loss when selling shares. -Double taxed at a corporate and shareholder levels. 1) no human has unlimited liability for the debts of the business (riskiest-manufacturing) 2) investors may contribute capital to the business, avoid unlimited liability, escape the obligation to manage the business, and easily liquidate their investments by selling their shares

S Corporation Status

-The corporation and its shareholders are taxed nearly entirely like a partnership: income and losses of the business are reported on the shareholder's individual federal income tax returns. -May have no more than 100 shareholders, have only one class of shares, and be owned by individuals and trusts. (May limit amount of capital raised) -May be hard to sell shares

Limited liability partnership (LLP)

A partnership whose partners have elected limited liability status. Identical to a partnership except that they have no liability for most obligations except for his OWN malpractice and wrongdoings to a client. - Has the choice to be taxed like a partnership or corporation.

Form of business

Liability and control may of the business may vary greatly. Some offer significant tax advantages to their owners.

Limited liability limited partnership (LLLP)

Limited partnership whose partners have elected limited liability status for all the partners. -By electing LLLP status, both the limited partners and the general partners will have no liability for most obligations. - A general partner will have unlimited liability for any torts he commits while acting for the LLLP