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BUSINESS FORMATION & PLANNING
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Why should you spend precious resources on business planning?
Launching a new business venture is one of the most exciting and challenging events of a career. With risks and pitfalls at every turn, the wise entrepreneur invests in up front planning so that their business is built on a solid foundation. Planning on the front end means less headaches and unexpected problems once your business is up and running -- a time when you can least afford the time and expense of putting out fires. |
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BUSINESS ENTITY DESCRIPTIONS
The following list provides a brief description of the most common types of entities available in most jurisdictions, i.e., Sole Proprietorship , Partnership/Joint Venture , Limited Partnership (LP) , Limited Liability Partnership (LLP) , Limited Liability Company (LLC) , S Corporation , C Corporation (regular corporation) , and Nonprofit Corporation . The descriptions explain some of the pros and cons applicable to these various types of entities. Notably, the list proceeds from the simplest to the more complex forms of entities, and from the least to the greatest protection against personal liability.
DISCLAIMER: This page does not provide an all-inclusive list of every type of business entity, nor a complete description of all of the issues to be considered in selecting an appropriate entity. Competent legal counsel by a licensed attorney should be obtained regarding the choice and formation of a legal business entity.
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- PARTNERSHIP / JOINT VENTURE
- LIMITED PARTNERSHIP (LP)
- LIMITED LIABILITY PARTNERSHIP (LLP)
- LIMITED LIABILITY COMPANY (LLC )
- S CORPORATION
- C CORPORATION (REGULAR CORPORATION) – A corporation is a business entity organized under state law for the purpose of making a profit. Corporations can be closely held (have only one or a small number of shareholders) or publicly traded (shares are sold on the public market). The shareholders (owners) of a corporation elect directors (for the Board of Directors) and officers (President, Vice President, Secretary, etc.) to manage the business of the corporation.
- PROS:
- The personal liability of a corporate shareholder is limited to their contribution of capital to the corporation, which means that if someone sues the business and wins, they can attach a judgment against the assets of the corporation, which include the capital contribution of the shareholder(s), but not the personal assets of the shareholder(s) (unless the corporate veil is pierced).
- Corporate shareholders can participate in the management of the business as directors, officers, or employees of the corporation.
- The cost of benefits provided to employees are deductible
- Due to recent changes in the tax law, dividends distributed to corporate shareholders are taxed at capital gain rates (generally, 15%).
- CONS:
- There is a double taxation applicable to corporations. The corporation is taxed on its earnings and profits at the business entity level. In addition, when profits are distributed to shareholders as dividends, those dividends are taxed at the individual shareholder level on the individual's tax return.
- There are corporate formalities to conduct and maintain, such as organizational and annual meetings, corporate minutes, etc.
- NONPROFIT CORPORATION
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This website is designed for general information only. The information presented on this website should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.
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