forms of business

Different Forms of Business Organization in New Hampshire The basic types of business in New Hampshire are: Proprietorship A person can enter into business in New Hampshire with a minimum of legal formalities. In a Proprietorship, the Owner of the business has sole responsibility for the operation of the business and all finances. In this form of business, the owner’s personal property is directly tied to the business property. Business profit (or loss) becomes the owner’s income (or loss). If a business owner wishes to operate under a name other than his or her own, then the business name must be registered with the Secretary of State’s office. Partnership The characteristics of a partnership are similar to a sole proprietorship, but the rights and obligations are shared among two or more partners. Business profits (or losses) are split among the partners. A partnership agreement should be filed with the Secretary of State’s office. Corporation A corporation is a legal entity separate from the owner(s). It may be established by three or more persons of legal age and may issue capital stock to investors. Generally, the stockholders and officers of a corporation are not personally liable for the debts and contracts of the corporation. However, in certain instances individual liability may be imposed. Limited Liability Company A Limited Liability Company (LLC) is a hybrid of the partnership and corporate forms of organization. Stock may be issued to General Partners (those controlling the business) and to Limited Partners (those with an investment in the business). This somewhat complex form of organization should only be considered after all the legal and tax implications are discussed with an attorney or CPA. Proprietorshi p 'S' Corporation Partnership Corporation L.L.C Formation No permission required. Agreement of parties involved. No permission required. File with state for permission. File with state for permission. File with state for permission. Legal Liability Unlimited, personal assets at risk Unlimited, personal assets at risk Limited Limited Limited to investment and varies with terms of LLC agreement Members are not personally liable for the debts of the corporation if the LLC is properly structured. Management Full control of management and options. Relatively few legal requirements Shareholders are not personally liable for the debts of the corporation. Shareholders are not personally liable for the debts of the corporation. Simplicity of Operation Relatively few legal requirements. Relatively few legal requirements. Formality of board of directors, officers, annual meetings and annual reporting. Unlimited unless terminated by agreement of shareholders Acquired by issuing stock or other borrowing Form 1120S and K-1 to each shareholder Formality of board of directors, officers, annual meetings and annual reporting. Unlimited unless terminated by agreement of shareholders Acquired by issuing stock or bonds or other borrowing Some formal requirements but less formal than corporations. Continuation of Business Entity Limited to the life of proprietor Limited unless provided for in a partnership agreement Unlimited unless terminated by agreement of members Acquired by issuing stock or bonds or other borrowing No tax at LLC level, similar to 'S' Corp. Acquisition of Capital Limited by the proprietors ability to secure Limited by the partners' ability to secure Federal tax filing required Schedule C with owner's form 1040 Form 1065 and K-1 with Owners' 1040 Form 1120 Taxation of Income Directly as owner's income Directly to each partner as agreed Distributed to shareholder and taxed directly to each Lowest among corporate forms Deductible, but subject to many regulations Taxed at corporate level and again if distributed to shareholders Generally taxed when distributed to shareholders. Admin and Legal costs Lowest Moderate Higher than 'S' Corp. Varies Owner's Fringe Benefits Not yet fully tax deductible Not yet fully tax deductible Deductible, but subject to many regulations Deductible, but subject to many regulations Pension Plans Some IRA, Keogh, SEP Some IRA, Keogh, SEP Various Various Various Transferability of Interest No No Yes, subject to consent Shares of stock in a corporation are easily transferable Possibly Major Advantage(s) Flexibility, minimum paperwork Flexibility, minimum paperwork Limited Liability (in most instances) and avoids double taxation Limited Liability (in most instances) Easier to raise capital than other forms Limited Liability (in most instances) Simpler to administer than other corp. forms Complicated in some ways, not valid in all states. May not meet the needs of some owners Major Disadvantages Unlimited financial liability Unlimited financial liability, unclear authority can lead to problems Several Limitations of 'S' status. Limits on some owner benefits Greater cost and administration, double taxation of owner's income The NH SBDC is an outreach program of the UNH Whittemore School of Business and Economics, and a cooperative venture of the U.S. Small Business Administration, the State of NH (DRED), the University System of NH, and the private sector.