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| Before going into business for your self there are many decisions to be made. One major decision that should be considered is which ownership structure would be appropriate for your fledgling business. There are many business structures that may work for your business, the advantages and disadvantages should be weighed and the structure should be determined prior to launching the new business. The potential ownership structures to choose from are Sole Proprietorships, Partnerships, Limited Partnerships, C-Corporations, S-Corporations, Limited Liability Companies, and Limited Liability Partnerships.
Sole Proprietorship A sole proprietorship is a business owned by one person. It is by far the easiest and least expensive ownership structure to form. Business formation under a sole proprietorship involves the acquisition of a business license and beginning operations. The sole proprietor is in full control of the business and is also fully and personally liable for all obligations made through business operations. A sole proprietorship is not taxed as an organization, but is taxed instead on an individual’s personal income tax form 1040, using a schedule C
Partnership Partnership Entity Set-Up - $100.00 (Includes Partnership Agreement, Organizational Consent, Ownership Certificates, EIN Submission)
C-Corporation A corporation is an artificial, intangible entity formed through the applicable state laws. A corporation is considered either domestic, which is in the state of formation, or it is foreign, which refers to corporations that are operating outside of the state of formation. A corporation is more complex and costly to form and to operate. The corporation is formed by the issuance of a charter through the state on application by the incorporators. The application for a corporate charter is known as the Articles of Incorporation for a business. Some fees that the incorporation will incur in the process of formation are filing fees, licensing fees, franchise taxes, possible attorney’s fees, and cost of supplies, such as minute books, corporate seals, and stock certificates. State law requires that a corporate name include a differentiating designation such as “corporation,” “company,” “incorporated,” or “limited.” A corporate name must not be the same as that of another business authorized to do business in the state whether that company is domestic or foreign. Notice of the new incorporation usually has to be advertised in the local newspaper in order to inform the public that the new corporation has been formed. The board of directors will meet together to create and adopt bylaws and approves the sale of stock, at which point the corporation becomes operational. Liability in a corporation is limited to the level of investment of a stakeholder. Taxation is more complicated in that it is the only entity that is taxed as an organization. This taxation is often a concern in that it facilitates a double taxation of funds. Not only is the corporation taxed, but the owners are also taxed on their earnings from the business. It is possible to reduce the double taxation issue through reasonable salaries, expense accounts, capital structure may include common stock and interest bearing loans, and limiting the payout of dividends. Another disadvantage of corporate taxation is that losses cannot be passed through to the owners.
Corporation Entity Set-Up - $250.00 (Includes Corporate Byplaws, Organizational Consent, Notice of Meeting, Meeting Minutes, Stock Certificates, Corporate Seal, EIN Submission)
S-Corporation An S-Corporation is formed in the same manner as a traditional corporation or what is often referred to as a C-Corporation. An S-Corporation chooses to elect an alternative tax status allowing it to be regarded as a partnership for income tax purposes, which is found in Subchapter S of the Internal Revenue Code. The election essentially creates a pass-through of revenues and expenses to the individual income tax forms. This pass-through alleviates the concerns of double taxation, yet allows for the limit of liability afforded corporation shareholders. An S-Corporation still has to file articles of incorporation and have board meetings with its accompanying documentation. In addition an S-Corporation can be owned by a maximum of 50 citizens or legal resident aliens. Other business organizations are not allowed to participate in ownership of an S-Corp. An S-Corp must file an informational tax return to the Internal Revenue Service, but the entity does not pay taxes on revenues. The revenues are passed on to the individual 1040. Corporation Entity Set-Up - $250.00 (Includes Corporate Byplaws, Organizational Consent, Notice of Meeting, Meeting Minutes, Stock Certificates, Corporate Seal, EIN Submission)
Limited Liability Company A limited liability company is a fairly new business formation having been created in 1977. It holds the same benefit of a corporation on liability of its members but does not have the same requirements placed on the corporation of holding meetings. It is a pass-through entity similar to that of an S-Corporation and of course the sole proprietors and partners. It can be formed as either a single member LLC or as many members as the company would like to maintain. There are no restrictions on who may be an owner in an LLC, whether citizen, legal resident alien, foreign investors, or both domestic or foreign business entities. An LLC must file an informational tax return to the Internal Revenue Service, but the entity does not pay taxes on revenues. The revenues are passed on to the individual 1040.
LLC Entity Set-Up - $200.00 (Includes Corporate Byplaws, Organizational Consent, Notice of Meeting, Meeting Minutes, Ownership Certificates, EIN Submission)
Limited Partnership & Limited Liability Partnership
A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners (GPs), there are one or more limited partners (LPs). It is a partnership in which only one partner is required to be a general partner. The GPs are, in all major respects, in the same legal position as partners in a conventional firm, i.e. they have management control, share the right to use partnership property, share the profits of the firm in predefined proportions, and have joint and several liability for the debts of the partnership. As in a general partnership, the GPs have actual authority as agents of the firm to bind all the other partners in contracts with third parties that are in the ordinary course of the partnership's business. As with a general partnership, "An act of a general partner which is not apparently for carrying on in the ordinary course the limited partnership's activities or activities of the kind carried on by the limited partnership binds the limited partnership only if the act was actually authorized by all the other partners." (United States Uniform Limited Partnership Act § 402(b).) Like shareholders in a corporation, LPs have limited liability, meaning they are only liable on debts incurred by the firm to the extent of their registered investment and have no management authority. The GPs pay the LPs a return on their investment (similar to a dividend), the nature and extent of which is usually defined in the partnership agreement. Since the general partner holds unlimited liabilty in the company in many cases a corporation or LLC is used as the general partner in order to limit its exposure. Limited partnerships are distinct from limited liability partnerships, in which all partners have limited liability.
LLP Entity Set-Up - $200.00 (Includes Company Operating Agreement, Organizational Consent, Notice of Meeting, Meeting Minutes, Ownership Certificates, EIN Submission) | |
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