Sole Proprietorship: There is no legal difference between the Sole Proprietorship and the owner. They are easy to create and can mature as quickly or slowly as the owner wants. There can only be one owner and raising capital can be difficult, so they seek funding from financial institutions. ● Liability ­ The Sole Proprietor is personally responsible for all debts and obligations. Creditors can claim personal assets of business owners and can sue if there is a breach of contract. Income Taxes ­ All income rendered is treated as personal income for the business owner. Ordinary personal income has the highest tax rate, but there are different income takes rates depending on the type of income being taxed. Being able to plane to take advantage of a lower tax rate is difficult for many sole proprietors. Longevity / Continuity ­ The Sole Proprietor is the sole owner, with no partners in the business, if the Sole Proprietor becomes disabled, retires or dies the business is dissolved. It does not the perpetual existence of a corporation. Control ­ The Sole Proprietor makes all the decisions and has total ownership over finances. Profit Retention ­ 100% profit retention allows them to use the profit at their discretion. they can reinvest in their current business, start a new business or use it for personal reasons. Location ­ Expanding or moving is not very complicated. Using a DBA name allows a Sole Proprietor to legally do business under a name other than their full name. To move, you register your name or your DBA to the state you’re moving to. Moving from a state with income tax to a state without income tax will take some planning to see how the changes effect your business. Convenience/Burden ­ As a Sole Proprietor you have all the responsibility to operate your business. You can’t bring in others a profit­sharing owners. Also, as a Sole Proprietor you may pay a higher income tax.

●

●

● ●

●

●

General Partnership: Association of two or more people joined in an entity to do business and share profits and losses. It is simple and inexpensive to operate. But, partners are personally liable for business debts and liabilities. ● ● ● ● Liability ­ Each person is personally responsible for all the debts of the partnership, that includes any debts incurred by partners on behalf of the partnership. Income Taxes ­ General partners don’t pay taxes directly to the IRS, their revenue and expenses are included on their income tax returns at their individual rates. Longevity / Continuity ­ Problems with partners and different goals among partners cna weekend and/or destroy the partnership. Control ­ If there is no partnership agreement, each has an equal right to participate in the management and control of the business. Disagreements in the ordinary course of the partnership are decided by the majority of the partners. Profit Retention ­ Profits and losses are passed through to the partners and taxed at their individual rates.

●

●

Location ­ Expanding and moving is much like a sole proprietorship, in that you need to register to do business by filing a DBA in the new area. ● Convenience / Burden ­ General Partnerships let many individuals merge assets and skills to help the company. The major burden is that the owners are accountable for whatever actions the company make. All partners may be responsible for finances and choices made by other partners. Limited Partnership: A form of partnership formed in compliance with state law that provides limited liability to certain partners who agree to refrain from management of the business. They can raise cash without involving outside investors in the management of the the business. Limited partners can leave or be replaced without the partnership being dissolved. Limited Partnership are more expensive to create than general partnerships. ● Liability ­ Limited partner isn’t liable for the obligations of the business unless he’s the general partner also. Only one partner in the limited partnership is required to be a general partner. they are only liable for the debt incurred to the extent of their investment. Income Taxes ­ A limited partnership treated like general partnership, all of the partners report and pay taxes individually on their share of the profits. Longevity / Continuity ­ If any partners leave the partnership or die, the business can continue. The remaining partner(s) only need to buy the business assets from the partner leaving or the surviving heirs. Control ­ No single limited partner can make a business decision without discussing it with the other partners. Profit Retention ­ All profits belong to all the partners, depending on their share, and are considered personal income by the IRS. Location ­ It’s easy to move a limited partnership into another state. Just like a sole proprietorship or a general partnership you simply file a DBA in the new state. Convenience / Burden ­ Limited partners can leave or be replaced without dissolving the company. The burden would be the general partners are personally liable for the business debt. It is also more expensive to start up than a general partnership.

● ●

● ● ● ●

C­Corporation: A legal entity chartered by the state with a separate and distinct existence from it’s owners. Shareholders have limited liability, the most they can lose is their investment. Shareholders can be people or other corporate entities. Corporate law is flexible and can lead to creative solutions to problems. They C­Corporations can be difficult to manage. They typically require attorneys and accountants, more fees and double taxation. ● Liability ­ Shareholders have limited liability. The most they can lose is the amount they invested, whatever they paid for the shares of the company. Their personal assets are safe. ● Income Taxes ­ Corporations have double taxation. They must pay federal, state and local tax on net income. The same profit is then subject to tax again when it’s returned to the shareholders with a dividend tax.

●

●

● ●

●

Longevity / Continuity ­ Corporations exist as long as the shareholders desire. It continues regardless of the circumstances regarding the owners. Deaths and transfers of interest have in impact. Shareholders can dissolve the corporation by a vote and legal proceedings can end a corporation. Control ­ Shareholders select a board of directors, shareholders approve the bylaws, articles of incorporations and any mergers. Strategic decisions are made by the board of directors. The board then elects officers, officers oversee day to day operations. Profit Retention ­ Many C Corporations can deduct fringe benefits Location ­ You can keep the business as it is, including the tax id # and expand it to another state by filing as a foreign entity. Or you can dissolve the corporation in the current state and register as a new corporation in the new state with a new tax id #. Finally, you can reorganize by registering the same mane corporation in the new state and merging the old corporation into it. Convenience / Burden ­ The ability to operate even if stakeholders leave is a convenience. A burden is double taxation, complex registration and high costs.

S­Corporation: An S­Corporation is a corporation that, after meeting certain eligibility criteria can elect to be treated like a partnership for tax purposes, avoiding paying corporate income tax. Or a sole proprietorship, taxed only once on the shareholder level. The only difference between a C­Corporation and an S­Corporation is the tax treatment. A S­Corporation can’t have more than 100 shareholders, all being U.S. citizens or resident aliens. Stockholders can’t be members of affiliated group of companies. ● ● Liability ­ Owners typically are not responsible for business debt and liabilities. Income Taxes ­ Pass­Through taxation. Not subject to corporate taxes. They are generally exempt from federal income tax other that tax on certain capital gains. Business profits are taxed at individual tax rates on each shareholders form 1040. Profits are only taxed once at the shareholders level. Longevity / Continuity ­ Exists forever as long as corporate regulations are met. Control ­ Many S­Corporations are smaller and they rely on shareholders to do the duties of corporate officers. Profit Retention ­ Shareholders must receive dividends according to the number of shares that they own, regardless of the amount of effort put into the business. Location ­ You can keep the business as it is including tax id # and expand it to another state by filing as a foreign entity. Or you can dissolve the corporation into the current state and register as a new corporation the in the new state with a new tax id #. Finally, you can reorganize by registering the same name corporation in the new state and merging the old corporation into it. Convenience / Burden ­ Profits pass through to owners. Shareholders are not personally responsible for the debts and liabilities of the business. The burdens would be that they can only have less than 100 shareholders and only one class of stock.

● ● ● ●

●

Limited Liability Company: A form of business that gives limited liability to owners while being treated as a partnership for taxes. It’s possible to create an LLC with one member and the members can participate in day to day activities. The risk of piercing the veil exists just as it does with corporations. Also, Most lenders require the LLC to personally guarantee any loans they take out. ● ● ● ● ● ● Liability ­ Members are protected for some or all liability for acts and debts of the LLC. They can not be held responsible unless they have signed a personal guarantee Income Taxes ­ Members have pass through taxation, so no double taxation. Profits are taxed at member level, no LLC level. The LLC does not pay federal income tax. Longevity / Continuity ­ There is limited life to an LLC. In the event of illness, retirement, death or other circumstances, the LLC will be dissolved. Control ­ Members have control over LLC in accordance to the shares or ownership they have. Members can make managers who run the LLC in day to day activities. Profit Retention ­ Profit is divided among members according to their share. Location ­ The LLC can stay in the old state and expand into a new state by registering as a foreign entity. Or, dissolve the LLC in the old state and start up again in the new state with a new tax id number. Convenience / Burden ­ The convenience of an LLC is that there is no personal liability, they have pass through taxation and usually easier to start up. The burden is the LLC has a limited life.

●