What Is The Best Type of Business Entity To Protect You by danman21


									                    What Is The Best Type of Business Entity To Protect You?
               Know Your Risk Fac-                                                                                                                                                             LIMITED LIABILITY COMPANIES
               tors — INC., S-CORP,                                                                                Limited                  Limited                                            (LLC) are business entities created
               LLC, LP, SP                                                                    S                   Liability               Partnership                  Sole                    by state statute. They combine com-
                                                                                                                                                                                               ponents of other business entities.
               When you started your inflat-                     Corporation             Corporation            Company (LLC)                  (LP)                Proprietorship              For tax purposes the LLC is treated
able business you probably considered                                                                                                                                                          as a partnership. It has members
how you would structure your business.                            Provides personal      Provides personal        All members are         State filing require-      Ease of organiza-         rather than shareholders, and man-
You thought about the tax implications and                        liability protection   liability protection     protected from          ments are generally        tion and start-up         agers rather than board of directors.
work involved in operating as an individual                       for you                for you                  personal liability      minimal                    Low legal costs           It is basically a business entity cre-
                                                                  Relatively easy to     Does not pay fed-        for the acts of the     Burden of legal/tax                                  ated by contract between the mem-

or as a distinct business entity. But, did                                                                                                                           Flexibility & inde-
                                                                  organize               eral income tax          LLC                     compliance is con-                                   bers.
you know that the type of business you                                                                            Treated for tax         siderably less
                                                                  Has a number of        Owners are taxed                                                            No outside over-
operate has specific insurance ramifica-                          tax & operating        only on their pro-       purposes as a part-     The limited partner
                                                                                                                  nership                                            sight or partners
tions? Who ends up being insured de-                              advantages             portional share of S                             (s) are protected
pends on the type of entity you select.                           Good choice for        Corporation profits      Created by contract     from liability for the                              A LIMITED PARTNERSHIP (LP)
                                                                  detail-orientated &    Reporting on in-         between members         debts & liabilities of                              requires that there be a least one
                                                                  disciplined owner      come or loss is          Has members in-         the LP                                              general partner and one limited part-
  A CORPORATION is the classic structure                                                 done on individual       stead of sharehold-     The only amount of                                  ner. Therefore, in comparison to the
  for providing personal liability protection                                            tax return               ers & managers          money a limited                                     CORPORATION where only one
  and offers a number of tax and operating                                                                        instead of a board      partner can lose is                                 person is required for the entity to
                                                                                                                  of directors            original investment                                 exist, the LP must have two mem-
  advantages. With these advantages, you
  will have the responsibility to comply with                                                                                                                                                 bers. Thus, do you want to involved
                                                                  Potential of double    Shareholders must        Owner can be per-       General partner’s          Unlimited personal       in a business relationship with an-
  legal requirements that other business
                                                                  taxation. **           have election to be      sonally liable for      personal assets are        liability                other individual?
  entities do not encounter. It is not enough                   **However, most          an S Corporation         certain acts            not protected from
  to form a corporation, you must really be                                                                                                                          Owner is directly
                                                                  small corporations     Must have 100            Departure of an         the LP’s debts &           taxed on income

  a one. Failing to comply with corporate                         do not pay divi-                                                        liabilities
                                                                                         shareholders or less     LLC member can                                     Legal responsibil-
  regulations can jeopardize the corpora-                         dends, so they are                              result in dissolution   Must have 1 general
                                                                                         Shareholders must                                                           ity
  tion’s liability shield.                                        not taxed twice,.                               of the LLC              partner & at least 1                                A SOLE PROPRIETORSHIP (SP) is
                                                                                         be U.S. citizens or
                                                                  Legal requirements     residents, & must        Upon dissolution,       limited partner                                     the easiest type of business to set up
                                                                  Maintainenance of      not be corporate         all business obliga-                                                        and allows for the most flexibility and
  S CORPORATIONS (S-CORP) are corpo-                              financial account-     shareholders or          tions must be re-                                                           independence. There is little out-
  rations which do NOT pay federal income                         ing records            partnerships             solved including                                                            side oversight and the owner is taxed
  tax. The S-CORP income or losses are                            Must schedule          Must have only           payment so debts                                                            directly on income. If a claim exceeds
  proportionally divided among and trans-                         meetings of the        one class of stock       & division of as-                                                           the policy limits, the owner’s personal
                                                                  board of directors                              sets to all mem-                                                            assets are on the line.
  ferred to its shareholders. You report the                                             regularly scheduled
  income or loss on your own individual in-                                              meetings of the
  come tax return. The major financial ad-                                               board of directors
                                                                                                                                                                                           Not intended as tax or legal advice. For
  vantage of an S-CORP is that it may be                                                                                                                                                   tax or legal advice contact your attorney or
  provide you with significant tax savings.                           NOTE: Business insurance as provided by the IIPG is a basic requirement for liability protection.                    tax advisor.

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