2 Choosing the Best Business Structure Lesson Goals:Learn the importance of a legal structureDiscuss four basic forms of business structures
3 Choosing the Legal Structure of Your Business Choosing the Best Business StructureChoosing the Legal Structure of Your BusinessSole ProprietorshipPartnershipLimited Liability CompanyCorporation
4 Questions You Should Ask Choosing the Best Business StructureQuestions You Should AskHow 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 StructureChoice based on:Less Commonly Considered ConcernsRaising MoneyRegulations – Ongoing OperationContinuityFlexibilityRecord Keeping
6 Choosing the Best Business Structure Sole ProprietorshipDefinitionA 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 StructureSole ProprietorshipCharacteristicsEasiest form of business to set up and operateProfits are taxed only onceUnlimited legal liabilitiesBusiness ends with death of ownerEasy to liquidate
8 Formation of Sole Proprietorship No formal process. Choosing the Best Business StructureFormation of Sole ProprietorshipEasiest Form of Business to Set Up and OperateNo 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 PartnershipsLimited Partnership
10 Choosing the Best Business Structure General PartnershipDefinitionA 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 PartnershipDefinitionA 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 StructurePartnershipsCharacteristicsEasy to set up and operateProfits are taxed onceLegal liabilityUnlimited for general partnersLimited for limited partnersTerminates upon death or withdrawal of partner, unless there is a partnership agreement to the contraryEasy to liquidate
13 Formation of General Partnership Choosing the Best Business StructureFormation of General PartnershipEasy to Set Up and OperateNo 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 StructureFormation of Limited PartnershipFile 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 StructureLimited Liability CompanyDefinitionCreated by state lawCross between a partnership and a corporation, with mostly partnership characteristicsTax advantages of a partnershipLimited liability of a corporation
16 Limited Liability Company Choosing the Best Business StructureLimited Liability CompanyCharacteristicsProfits are taxed onceLimited legal liabilityBusiness may or may not terminate upon death or withdrawal of member, depending upon operating agreementModerately easy to liquidateModerately easy to set up and operate. Some formalities are required
17 Acquire all the necessary licenses and permits. Choosing the Best Business StructureFormation of LLCAcquire 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 CorporationDefinitionFormed 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 StructureOrganization of CorporationCorporate StructureShareholders own the corporation through stock ownership.Shareholders elect the Board of DirectorsBoard sets corporate policy.Board elects corporate officers who run the day-to-day operation.
20 Professional Corporation Choosing the Best Business StructureCorporationsTypesCCorporationProfessional CorporationS Corporation
21 The most complex form of business to set up and operate Choosing the Best Business StructureCorporationsCharacteristicsThe most complex form of business to set up and operateProfits may be subject to double taxationLimited legal liabilityBusiness continues after death of owner(s)Difficult and expensive to liquidate
22 Formation of Corporation Choosing the Best Business StructureFormation of CorporationMost Complex Form of Business to Set Up and OperateFile Articles of Incorporation with theSecretary 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.