A. Sole Proprietorship Operating as a Sole Proprietorship as you are now does not protect your personal assets in the event a suit was brought against your company. Sole proprietorships do not differentiate between the business and the individual whom owns the business. In order to be recognized legally as a business you will need to file for an EIN (Employer Identification Number) this in effect is your business’s social security number. As a Sole Proprietor you are only obligated to pay taxes once a year as you would an individual whom did not own his own business. You are however, able to use business expenses as deductions which can in effect lower your tax burden. Regarding longevity, being a Sole Proprietor as you are aware, limits the continuity of your business. You are unable to bring in partners to the business and continue to operate as a Sole Proprietor. Because you are solely responsible, this means you also do not have to share profit. You are able to use the profit as you see fit. Similarly related, you also have complete control over all decisions. Decisions such as where your business is located and how many locations you have and whether or not you would like to operate in other states are all matters you and you alone have control over. If you decide to operate in additional states you will need to register a new DBA in each state and check with each state regarding their requirements of operating a sole proprietorship. There are many conveniences to operating your business as a Sole Proprietorship, the biggest of which is the fact that you are the decision maker. This could also be the biggest risk as you are also solely liable. B. General Partnership You could always partner with another individual thus creating a General Partnership. Bringing in a partner does not limit the liability burden, but does limit your control of the

business to an extent, something you may want to consider. You will still file taxes as an individual reporting your business income. Partnering allows for an additional individual(s) to share in profits and losses along with decision making within your business. The profit sharing does not have to be equal however your partner will have the authority to make decisions on your behalf. In the event that you were to pass away or decide you no longer wanted to participate in the business the business would still remain intact under the remaining General Partner(s). Possibly the main reason you would enter into a General Partnership is to share the burden of potential loss. Your partnership can be either a verbal or written agreement. One of the biggest risks to entering into a General Partnership is that you are still completely liable. If your partner makes a bad decision you are equally liable regardless of whether or not you were involved in that decision. General Partnerships just as Sole Proprietorships simply need to register for an EIN number in order for their business to be legal. If you ever decided to relocate to another state you would need to register a new DBA in that state the same as you would if you were operating a Sole Proprietorship. C. Limited Partnership This type of partnership is much like the General Partnership with a few additional criteria. The Limited partnership unlike the General Partnership must be by written agreement. It is recommended that a termination paragraph be included in your agreement in the event that one of the partners decides they no longer want to be involved in the business. Unlike in a General Partnership, in a Limited Partnership a limited partner can leave the partnership without dissolving the business. In the event a partner decided to leave the business he would need to file a dissolution form within the state the business is being operated in. This written agreement must be filed with the state that the limited partnership is operating in.

In the event that you wanted to expand into another state you would need to file in that state and follow state specific guidelines for operating a Limited Partnership. In a Limited Partnership the General Partner typically carries more liability and carries out the management of running the business where the Limited Partner typically does not engage in day to day business activities. This leaves the control and decision making to the GP including but not limited to where the business is located as well as expanding. The LP’s liability is limited to their investment only. Profits are typically split in half unless otherwise stated in a written agreement. Taxation in this type of partnership is the same as a General Partnership and can usually avoid being taxed as a corporation as long as certain criteria are met. Both the GP and the LP would file as individuals and report income from the business accordingly. As with any partnership you would have the right to dissolve the business under the Uniform Partnership Act. In the event that you chose to expand your business into another state the LP would be responsible for filing within that state. As with any partnership the Limited Partner has the opportunity to take control, a risk to consider when thinking about entering into a Limited Partnership. D. C‐ Corporation The biggest difference in that of a C‐Corporation compared to a partnership is that it is regarded as an independent entity form its owners and is taxed as such. Corporations must file taxes every year and make quarterly tax payments. Corporations are required to conduct business under the laws of the states they operate in. When operating in multiple states you must seek foreign qualification in each state order for each state to recognize your business as a legal business. State regulations vary, possibly making the burden of operating in different states cumbersome. Shareholders within a Corporation have ultimate control of

the business. The profits are determined by the number of shares each shareholder owns. Decisions are made by the shareholders and each shareholder has the same ratio of “say so” as they do shares. Day to day business is managed by employees hired by the Corporation. Shareholders do not have the liability as a GP in a partnership. Corporations are required to have a board of directors. Regarding continuity, the business can live long after the original shareholders. There are differences in privately held Corporations and publicly traded Corporations the most significant of which is the ability to make major decisions at a faster pace as a privately held company. One of the most interesting facts about Corporations is that they are regarding as living being under the law, able to purchase, own and sell property and equipment as a human would. Possibly one of the biggest negatives in operating as a C‐Corporation is that as a shareholder you could be double taxed. The biggest convenience is the limited liability in comparison to a Sole Proprietorship. E. S‐Corporation S‐ Corporations are much like C‐Corporations with the exception that this type of organization choses to file its taxes through its individual shareholders to avoid double taxation. The S‐Corporation does not pay federal income taxes. To qualify as an S‐ Corporation a business can only have one class of stock and not have more than 100 shareholders. The S‐Corporation abides by the laws of the state in which it operates in. If you choose to expand into additional states you can do so by either dissolving the original corporation or by filing as a foreign corporation in the state(s) you wish to operate in. The liabilities are the same as in a C‐Corporation where the business itself is a stand‐alone entity and shareholders have ultimate control of the business. Profits are determined by the

number of shares each shareholder owns. The benefit of operating as an S‐Corporation seems to be that the invested parties can avoid double taxation. F. Limited Liability Limited Liability companies include elements from both partnerships and corporations. One of the first steps in forming an LLC is to file the articles of Organization. Although it may not be required in every state, executing an Operating Agreement is a good idea. An Operating Agreement. This type of organization has the ability to choose the way it is taxed. It can choose to be taxed either as a corporation or as a partnership. Its members or shareholders remain limited in their liability and are protected from bad debts depending on the state law the business is operating in. Control of the business is with the members and day to day business is typically conducted by employees just as it is with a corporation. LLC’s are also treated as stand‐alone entities. LLC’s are not required to have a board of directors or officers as corporations are. Profits are distributed amongst its members. LLC’s as most other organizations are governed by the state(s) in which they operate in. One drawback to operating an LLC is that in many states when one member leaves the LLC the business must be dissolved. This type of business has the convenience of flexibility that other types of business do not have. If you chose to move your LLC to another state you would have several choices. You could continue operating your corporation in the current state and file for a foreign qualification in the new state, you could liquidate your corporation in the existing state and form a new one in the new state or you could reorganize and restructure your business merging the two together.

MEMORANDUM TO: Business Owner RE: Recommendation on Business DATE: 10/22/2012 Based on the details of your circumstance I recommend that you begin operating your business as a Limited Liability Company. You do not necessarily need to partner with an additional individual or investor for additional funds, but could register your LLC as a publicly traded company. In doing this you could sell stock to increase funds in order to expand as you hope to. Your concern over your personal liability in regards to an accident is understandable. Operating as a sole proprietorship as you are today places an incredible burden on you personally as the law views you and your business as one entity. If you operated as an LLC this change would limit your liability as the law would then view you and your business as stand‐alone entities. In operating as an LLC without partnering with other individuals you would remain in complete control of both profits and decision making as operating an LLC does not require you to put a board of directors in place. Operating as an LLC provides the limited liability of standard corporations as well as provides flexibility in choosing how you would like to file your taxes. You could file your businesses taxes on your personal taxes as you do now under a Sole Proprietorship or file them separately as a corporation. Given your desire to expand and your anxiety over the liability you currently carry transitioning to an LLC would fit your needs best.