A sole proprietorship is a business with one owner that is not organized or formed as a legal entity under any state or federal law.
What are the liabilities?
The owner is personally liable for any claims brought against the business to the full extent of his personal assets.
How are they taxed?
The owner pays income taxes on the profits of the business as though it were personal individual income.
Partnerships
What is a Partnership? How do we start one?
A partnership is a business entity with two or more participants. It is normally started by agreement, written or oral, between the participants. After an agreement is made among the partners as to the role and obligation of each partner, the partnership may undertake a project or business venture.
What are the liabilities in a partnership?
Each partner may be risking 100% of his/her personal assets in the operation of the partnership and depending on the nature of the business of the partnership, there may be tax issues that impact the individual’s personal tax obligation.
What happens when one partner wants to leave, is incapacitated, or dies?
The answer depends on agreement among the partners. If there is no prior agreement, the assets of the partnership are normally distributed among the partners and the estate of the deceased or departed partner on a pro rata basis in an amount equal to the partner’s share. Another option is for the partnership to continue with the departed partner having received his pro rata share of the assets as determined at the time of dissolution.
Corporation
A corporation is a business that has been formed and registered in accordance with state law. A properly formed and organized corporation is considered to be a separate entity with the same status and privileges in the eyes of the law as a human being.
What are the different types of corporation?
C Corporation
A “C” corporation is a company with shareholders who are individuals or other companies that is formed under state law. It pays income taxes. The shareholders are not held personally liable for the debts of the company. A shareholder has at risk only the amount of money equal to the value of the shares held. The employees are paid a salary and the share holders are paid dividends or income at the end of the year on the profits made by the company during the previous year in a amount equal to the pro rata share of stock ownership of the shareholders. A C corporation is managed by a board of directors and the board elects officers who actually run the company.
Sub S Corporation
A Sub S Corporation is also a company formed under state law. And just as with a C corporation . The shareholders are not held personally liable for the debts of the company. But there is a restriction on the number of shareholders and there can be no corporate shareholders. Also shareholders are restricted as to where they can live or reside relative to the State of incorporation of the company. A Sub S corporation does not pay income taxes. The shareholders are taxed individually in an amount equal to the income each receives at the end of the year.
LLC
A limited liability company (“LLC”) is an entity created under state law using the same procedures as forming a C corporation.
What are the advantages?
An LLC has the same advantages as a Sub S corporation exempt there is no limitation as to who may be a member and where that member may live.
How are LLC’s taxed?
An LLC does not pay taxes. Taxes are paid by the members (owners) in proportion to the money they receive from the company as profits.
What are the liabilities of LLC’s?
The LLC gives the member (owners) the same protection from individual liability as he/she would receive from owning shares in a C corporation or an Sub S corporation. There is the advantages of no taxation at the corporate level that one would receive as a shareholder in a Sub S corporation.
Non-Profit Corporation
Non-profit corporations are formed under state law with a subsequent approval by the IRS for a non-profit status. Non-profit corporations are formed and operated like C-corporations except they exist for a charitable or religious purpose and do not pay income taxes on any profits generated from the operation of the company. They may also solicit money and those who contribute may receive a tax write-off from State and federal governments.
How do I incorporate a corporation? What are the steps in incorporating?
The first step is a reserve a name with the secretary of state; second file a Certificate of Incorporation with the Secretary of State; third organize the company, elect officers, and distribute stock.
How do I select a name?
One may choose a name but it cannot be a name of another company already in existence or so close to that name as to cause confusion in the market place. Once the name is chosen it is submitted to the Secretary of State where it is reserved for sixty days, the time in which the incorporation under that name must be completed.
Who should form a corporation?
Anyone can form a corporation but is advisable to use a lawyer who can insure that the company is organized in the manner intended by the shareholder(s).
How are Corporations taxed?
C corporations are taxed on its profits at the end of the year at a rate fixed by the tax code. S corporations are not taxed separately. The shareholders are taxed on the money received from the company.
What are the liabilities of a corporation?
Corporations may be liable for the consequences of the company’s conduct just as would an individual. However, the shareholders are not individually liable for any judgement against the company.
Can my corporate directors be on an H1-B status?
Yes. Immigration status is not a factor.
What is a buy-sell agreement?
A buy-sell agreement is an agreement among the shareholders in an S corporation, or a C corporation that is not a public company (shares are not sold on the stock market), that before a shareholder can sell his/her shares to a third party, the shares must first be offered to the corporation or to the other shareholders.
What is the difference between a partnership and a LLC?
In a partnership the partners are personally liable for the debts and obligations of the partnership, which means that all of their personal assets are at risk if there is a legal judgment against the partnership. Members of LLC are not personally liable and can lose or risk losing only the money they have in the LLC.
What is the difference between a Limited Partnership and a General Partnership?
General partners are all 100% liable for the liabilities of partnerships. Limited partner is only liable for percent of participation in partnership.
Non Profit Corporations?
Company organized for charitable purpose and does not make a profit.
Why should we form one?
When there is a charitable purpose for which money will be raised.
How do we form one?
The same way as any other corporation is formed with the state. In addition the IRS must recognize and grant charitable status.
What are the liabilities of one?
The operation of the entity must be for a charitable goal and the company cannot keep accumulated assets for any goal other than to advance the charitable purpose.
