Young & Young can assist you with creating or starting a business and help you establish the right structure for your needs and goals. You may choose among several different types of legal entities based on considerations such as tax implications, management style, the number of owners and the relationships between them, the limiting of personal liability, and attractiveness to investors.
We will help you understand what kind of business entity is best for you and your estate plan. Through examining your goals and plan, we can help you see the advantages of each type and decide on the entity type that’s right for you.
This is a business you run under your own name as the owner. The primary benefit of a sole proprietorship is its simplicity; no registrations or filing fees are required, and the revenues and expenses of the business are treated as your personal income and expenses for tax purposes. Management of the business is simple because there is no formal business entity, and there are no formalities with which to comply. However, as a proprietor, you have unlimited exposure to the liabilities of the business.
There are three forms of partnerships:
General Partnerships operate like a sole proprietorship with more than one proprietor, or partner. The partners will generally enter into a partnership agreement which dictates how the partnership decisions will be made. A general partnership is taxed similarly to a sole proprietorship with the revenue and expenses of the partnership allocated to each partner in proportion to his/her ownership interest. However, each partner has unlimited exposure to the liabilities of the business.
Limited Partnerships provide some liability protection to the partners. Many are structured with one or more general partners with unlimited personal liability and one or more limited partners whose liability is limited to their investment in the partnership.
Limited Liability Partnerships are a third type that must register with the state and provide liability protection for all partners.
A corporation allows for multiple owners who are considered shareholders. Each shareholder’s exposure to the liabilities of the corporation is limited to the extent of that shareholder’s investment in the corporation. Corporations must file articles of incorporation and annual reports with the state. The corporation is governed according to its by-laws, and corporate minutes should be kept.
C Corporations allow for a virtually unlimited number of shareholders and can be attractive to investors, but the corporation itself is taxed on its profits, and the shareholders are taxed on dividends paid to them.
S Corporations are taxed in the same way as partnerships and avoid the taxation of both corporate and shareholder profits. The number of shareholders is limited to 100, none of which can be partnerships or corporations.
Limited Liability Company
Limited Liability Companies (LLCs) combine the best elements of a partnership with the best elements of a corporation. They can have many owners who are considered members and are taxed in the same way as partnerships, yet they provide limited liability to the owners like a corporation. LLCs generally have fewer corporate formalities than a corporation and allow the allocation of profits and losses different from ownership percentages.