1. Choosing the Best Business Structure

2. Choosing the Best Business Structure
Lesson Goals:
Learn the importance of a legal structure
Discuss four basic forms of business structures

3. Choosing the Legal Structure of Your Business
Choosing the Best Business Structure
Choosing the Legal Structure of Your Business
Sole Proprietorship
Partnership
Limited Liability Company
Corporation

4. Questions You Should Ask
Choosing the Best Business Structure
Questions You Should Ask
How easy is it to set up and operate?
What are the tax advantages and disadvantages?
What are your potential legal liabilities?
What happens to the business if you should die?
How easy will it be to liquidate the business?

5. Less Commonly Considered Concerns
Choosing the Best Business Structure
Choice based on:
Less Commonly Considered Concerns
Raising Money
Regulations – Ongoing Operation
Continuity
Flexibility
Record Keeping

6. Choosing the Best Business Structure
Sole Proprietorship
Definition
A sole proprietorship is a business owned and operated by one person for profit.

7. Easiest form of business to set up and operate
Choosing the Best Business Structure
Sole Proprietorship
Characteristics
Easiest form of business to set up and operate
Profits are taxed only once
Unlimited legal liabilities
Business ends with death of owner
Easy to liquidate

8. Formation of Sole Proprietorship No formal process.
Choosing the Best Business Structure
Formation of Sole Proprietorship
Easiest Form of Business to Set Up and Operate
No formal process.
Obtain all necessary federal, state, and local licenses and permits.
Register Assumed Name Certificate (if necessary).
Obtain Employer Identification Number (if necessary).

9. Types of Partnerships Choosing the Best Business Structure
General Partnerships
Limited Partnership

10. Choosing the Best Business Structure
General Partnership
Definition
A partnership is any two or more individuals who contribute money, labor, and skill to a business, and who share in its profits, losses, and management.

11. Choosing the Best Business Structure
Limited Partnership
Definition
A limited partnership has one or more partners who have limited liability and no rights of management.

12. Easy to set up and operate
Choosing the Best Business Structure
Partnerships
Characteristics
Easy to set up and operate
Profits are taxed once
Legal liability
Unlimited for general partners
Limited for limited partners
Terminates upon death or withdrawal of partner, unless there is a partnership agreement to the contrary
Easy to liquidate

13. Formation of General Partnership
Choosing the Best Business Structure
Formation of General Partnership
Easy to Set Up and Operate
No formal process required.
Obtain Employer Identification Number.
Obtain all necessary federal, state, and local licenses and permits.
Register Assumed Name Certificate, if necessary.
Partnership Agreement (optional, but highly recommended).

14. Formation of Limited Partnership
Choosing the Best Business Structure
Formation of Limited Partnership
File Certificate of Limited Partnership with Secretary of State or other appropriate agency.
Name must contain the words “Limited Partnership.”
A written partnership agreement is required.
Maintain certain records as required by state law.

15. Limited Liability Company
Choosing the Best Business Structure
Limited Liability Company
Definition
Created by state law
Cross between a partnership and a corporation, with mostly partnership characteristics
Tax advantages of a partnership
Limited liability of a corporation

16. Limited Liability Company
Choosing the Best Business Structure
Limited Liability Company
Characteristics
Profits are taxed once
Limited legal liability
Business may or may not terminate upon death or withdrawal of member, depending upon operating agreement
Moderately easy to liquidate
Moderately easy to set up and operate. Some formalities are required

17. Acquire all the necessary licenses and permits.
Choosing the Best Business Structure
Formation of LLC
Acquire all the necessary licenses and permits.
File articles of organization with the Secretary of State.
Pay filing fees.
Prepare and adopt operating agreement.
File all necessary reports with the Secretary of State.

18. Choosing the Best Business Structure
Corporation
Definition
Formed under state or federal law. Legally treated as an artificial person, distinct from the individuals who own it.

19. Organization of Corporation
Choosing the Best Business Structure
Organization of Corporation
Corporate Structure
Shareholders own the corporation through stock ownership.
Shareholders elect the Board of Directors
Board sets corporate policy.
Board elects corporate officers who run the day-to-day operation.

20. Professional Corporation
Choosing the Best Business Structure
Corporations
Types C
Corporation
Professional Corporation
S Corporation

21. The most complex form of business to set up and operate
Choosing the Best Business Structure
Corporations
Characteristics
The most complex form of business to set up and operate
Profits may be subject to double taxation
Limited legal liability
Business continues after death of owner(s)
Difficult and expensive to liquidate

22. Formation of Corporation
Choosing the Best Business Structure
Formation of Corporation
Most Complex Form of Business to Set Up and Operate
File Articles of Incorporation with the
Secretary of State.
Pay filing and license fees.
Prepare and adopt bylaws.
Obtain corporate minute book, corporate seal, stock certificates, and other desired supplies.
Follow corporate formalities.