2 What are the Various Business Structures? Sole ProprietorshipPartnershipCorporationLimited Liability Partnership (LLP)Limited Liability Corporation (LLC)
3 What is a Sole Proprietorship? A sole proprietorship is a type of business entity that is owned and operated by one individual and in which there is no legal distinction betweenthe owner and the business
4 What is a Partnership?A partnership is a business formed between two or more people who share in the profits and the liabilities
5 What is a Corporation?An association of individuals, created by law or under authority of law, having a continuous existence independent of the existences of its members, and powers and liabilities distinct from those ofits members
6 What is a Limited Liability Partnership? is a partnership of one or more general partners, who manage the business, and one or more limited partners, who invest in the partnership but do not manage it
7 What is a Limited Liability Corporation? A limited liability company is a type of business entity that combines the personal liability protection of a corporation with the tax benefits and simplicity of a partnership
9 Sole Proprietorship Advantages: You have complete control of the decision making of the businessSale or transfer can only take place at your consentNo corporate tax paymentsMinimal legal costs to form a sole proprietorshipFew formal business requirements
10 Sole Proprietorship Disadvantages: Personally liable for the business Can not simply declare that the business was bankrupt and cut losses
11 Partnership Advantages: Two heads (or more) are better than one Easy to establish and start-up costs are lowGreater borrowing capacityOpportunity for income splittingPartners’ business affairs are privateLimited external regulationEasy to change your legal structure later if circumstances change.
12 Partnership Disadvantages: Liability for the debts is unlimited Partners are ‘jointly and severally’ liable for the partnership’s debtsRisk of disagreements and friction among partnersEach partner is liable for actions by other partnersIf partners join or leave, can be costly to value partnership assets for buy in or buy out
13 Corporation Advantages: Liability of the owners is limited to their investment in the company. Only the owners' contribution is at stake rather than their personal assetsThe corporation is considered a legal person with perpetual existence. It exists until it is liquidatedDeath or change in ownership has no effect on the corporationThe ownership is represented by the number of share certificates held by a person, and this makes the transfer of ownership very easy
14 Corporation Disadvantages: Establishing a corporation is a complex processShareholders delegate the governance function to a body of persons called board of directors. The board of directors hires management to look after the day to day affairs of the corporation. It is quite possible that the management may act to further their own interests rather than the interest of the owners of the corporationIn case of corporations there is double taxation. First of all the corporate income is taxed at a flat rate and then the dividends paid to the shareholders is taxed
15 Limited Liability Partnership (LLP) Advantages:Limited partnerships allow pass-through taxationLosses limited to the money invested for limited partners making it easier to raise moneyPartners have limited liability, from errors, omissions, negligence, or malpractice committed by other partnersBy allowing limited partners to be responsible only for the capital invested in the partnership (and thus limiting personal liability), limited partnerships offer significant advantages as an investment vehicle.
16 Limited Liability Partnership (LLP) Disadvantages:However, limited partners do not have the same amount of control over a partnership as a general partner.
17 Limited Liability Corporation (LLC) Advantages:Like a corporation, an "LLC", is a separate and distinct legal entityLLC can obtain a tax identification number, open a bank account and do business, all under its own nameOwners, known as members, have "limited liability", meaning that, under most circumstances, they are not personally liable for the debts and liabilities of the LLCFor U.S. federal income tax purposes, an LLC is treated by default as a pass-through entity
18 Limited Liability Corporation (LLC) Disadvantages:The principals of LLCs use many different titles—e.g., member, manager, managing member, managing director, chief executive officer, president, and partner. As such, it can be difficult to determine who actually has the authority to enter into a contract on the LLC's behalfMany individuals and Judges do not understand and may find ways to “pierce the veil” to find personal liability