Business Formation

A General Partnership is the most simplistic type of legal structure designed for the situation in which two or more people are engaging in some type of business activity.

The entities involved in a partnership can be individuals, corporations, or trusts. The profits and losses generated by a General Partnership are shared equally among its partners. Meaning that profits, liability and management duties are divided equally among partners. If you opt for an unequal distribution, the percentages assigned to each partner must be documented in the partnership agreement. Yet, a partnership agreement is created to further define the rights, responsibilities, and duties of each partner, as well as the terms of continuity if one of the partners resigned or drop from the partnership. Financial responsibility is shared equally among the partners, with each partner jointly and severally liable for all business debts and obligations which means that the partners are jointly liable for any and all legal claims against any of the partners.

The taxation of a General Partnership is calculated at the individual level. One of the good reason, you may thing of General Partnership is the simplicity of it taxes, as you don’t have to file a separate return; however, partners’ personal assets are unprotected, Partners Liable for Each others’ actions, and finally partnership termination could take place Upon Death or Withdrawal of One of the Partners.

A corporate structure is more complex than other business structures. It requires complying with more regulations and tax requirements. It may require more tax preparation services than the sole proprietorship or the partnership. It is formed under state law and subject to tax at federal and state levels. Corporations are formed under the laws of each state and are subject to corporate income tax at the federal and generally at the state level. In addition, any earnings distributed to shareholders in the form of dividends are taxed at individual tax rates on their personal tax returns.The corporation is an entity that handles the responsibilities of the business. Like a person, the corporation can be taxed and can be held legally liable for its actions. If a business is organized as a corporation, the business owner is generally not personally liable for the debts of the corporation. (Exceptions my exist under state law.)

C-Corp

The advantages of starting a C corporation is that it allows for many owners. If you plan on starting a large corporation with thousands of shareholders, this is the route to take. The C corporation is the method of choice for publicly traded companies. Another advantage for C corporations is the lower tax rate on the first $75,000 of business income. This means that even if you have a small business, the C corporation can be beneficial.

One of the vital disadvantages of the C corporation is double taxation. With this type of business entity, you have to pay taxes at the corporate level, and then once the profits are distributed to shareholders, they must pay taxes on the money they receive as well. Another impediment of using a C corporation is that it requires a great deal of formality. You must have shareholder meetings, a board of directors and corporate minutes.

S-Corp

One of the major leverage of the S corporation is that S-Corporation allows income or losses to be passed through to individual tax returns, similar to a partnership. This means that the income from an S corporation is simply passed onto the shareholders of the company instead of being taxed at the corporate level. Shareholders then pay taxes on this money at their marginal tax rate. Owners can also minimize self-employment taxes with this type of business structure. Salaries are subject to self-employment taxes, but distributions are not. An S-Corporation is generally exempt from federal income tax other than tax on certain capital gains and passive income.

S-Corporation is an attractive option, but there are a few detriments that should be considered before making decision. First, S corporations cannot have more than 100 shareholders. This makes it impossible for publicly traded companies to use, since they regularly have thousands or millions of shareholders. Second problem is that owners sometimes have to pay taxes on profit distributions that they did not receive if profit is reinvested back into the company.

This type of entity provides the same liability protection as a corporation but can have different tax consequences. It is called a Pass-through taxes as there's no need to file a corporate tax return. Owners report their share of profit and loss on their individual tax returns, meaning you avoid double taxation. Moreover, owners will have limited liability for business debts and obligations. the tax liability can be more substantial than a subchapter S corporation. The main advantages are limited liability entity type will create a legal entity distinct from its owner “members” granting limited liability like a corporation, but will have fewer formalities like a

partnership in terms of taxes and centralized management. In addition, no residency requirement. Owners need not be U.S. citizens or permanent residents to do business in U.S.

One drawback is the self-employment tax, where the income is subject to Federal income tax and self-employment tax on the same return.

A Limited Liability Company (LLC) is a legal business structure allowed by state statute.

General Partnership provides an individual partner protection against personal liability for certain partnership obligations.The Limited Liability Partnership (LLP) is essentially a general partnership in form, with one important difference. Unlike a general partnership, in which individual partners are liable for the partnership's debts and obligations, an LLP provides each of its individual partners protection against personal liability for certain partnership liabilities.

Limited partnerships allow partners to have limited liability as well as limited input with management decisions. These limits depend on the extent of each partner’s investment percentage. Limited partnerships are attractive to investors of short-term projects.Some states limit the creation of a limited liability partnership to professionals such as doctors, Accountants, or lawyers.

The leverage of having LLP is each member is personally responsible for the actions of the company, which includes debts, liabilities and the wrongful acts of other partners. No double taxation, the company are passed through to partners to file on their individual tax returns. Credits and deductions are divided by the percentage of individual interest each partner has in the company. On the other hand, the downside is individual partners are not obligated to consult with other participants in certain business agreements.

A Limited Liability Company (LLC) is a legal business structure allowed by state statute.

General Partnership provides an individual partner protection against personal liability for certain partnership obligations.The Limited Liability Partnership (LLP) is essentially a general partnership in form, with one important difference. Unlike a general partnership, in which individual partners are liable for the partnership's debts and obligations, an LLP provides each of its individual partners protection against personal liability for certain partnership liabilities.

Limited partnerships allow partners to have limited liability as well as limited input with management decisions. These limits depend on the extent of each partner’s investment percentage. Limited partnerships are attractive to investors of short-term projects.Some states limit the creation of a limited liability partnership to professionals such as doctors, Accountants, or lawyers.

The leverage of having LLP is each member is personally responsible for the actions of the company, which includes debts, liabilities and the wrongful acts of other partners. No double taxation, the company are passed through to partners to file on their individual tax returns. Credits and deductions are divided by the percentage of individual interest each partner has in the company. On the other hand, the downside is individual partners are not obligated to consult with other participants in certain business agreements.

A partnership is composed of general partners and limited partners under which it is possible for a person to become a partner upon terms that his liability to the creditors of the firm should be strictly limited. Limited Liability are often used for professional firms in which the professionals want to turn over management of the partnership to the general partner. Limited partnerships are often formed as film production companies, to invest in real estate, or other short-term projects.

Limited Partnership has the same advantages as other types of partnerships with the option of limited partners; these partners can limit their liability while still participating in the growth of the business. In addition, a limited partner who decides to participate in managing the business may find himself or herself liable for these management decisions.

The major disadvantage to the limited partnership is that the general partner must bear all legal liability for his or her management decisions.This person will need to be compensated adequately to offset these risks. In addition, the partnership agreement should include provisions that answer the question

A nonprofit corporation is an organization that has a mission to serve the public interest and has filed incorporation papers with the state. Because the corporation works for the public good, it receives exemptions from state and federal taxes it would otherwise have to pay. Hence, to a certain extent, these groups are publicly subsidized.

The basic definition of a nonprofit organization is a business that does not pass on excess revenue to owners, shareholders, or other investors. Instead, a nonprofit uses this money to further its purpose, which includes paying the salary of its owners and other employees.

One of the most common types of nonprofit organizations is a 501(c)(3), named after a section of the IRS code, but there are other types.

The main benefit as a non-profit organization is “No Taxes” As a nonprofit corporation, your organization can get state and federal exemptions from corporate income taxes plus certain

other taxes. Another benefit, Individual donors to your nonprofit corporation can claim personal federal and state income tax deductions, and inheritance may be exempt from federal estate taxes.

On the contrary, non-profit organizations have few restrictions too, such as no pay for your directors and limits on political campaigning and lobbying. And when your organization closes, its assets must be given to another nonprofit.

Sole proprietorship is the simplest type of business. A single person is responsible for operating the business and it’s finances. Most sole proprietorships are small businesses that have one employee basically the owner. Forming a sole proprietorship is usually easy. Indeed, in many states it requires no special action. Doing freelance or independent work under your own name is usually enough to form a sole proprietorship, or you can file a DBA (Doing Business As).

The dominant two benefits of structuring your business as a sole proprietorship are:

1. The simplicity of formation and taxes. Since there usually are no formal steps required to form a sole proprietorship.
2. There is no cost involved.

In addition, owners of sole proprietorships count the business’ income on their personal income tax returns. The only major disadvantage is that sole proprietorships do not offer any legal protection to their owners.