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Legal Business Structures Overview

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					Legal Structures

Use with Business Plan

S Corporations
z Regular corporation with the business income passed through to the shareholders z income taxes are paid by the shareholders based on their portion of the corporate income

S Corps Must Follow Key Rules
z IRS election - sign and file Form 2553 by the 15th day of the third month z No more than 75 shareholders z Only one class of stock z Restrictions on the type of shareholders (corporations, various trusts, and nonresident aliens may not own shares)

Limited Liability Companies
z An entity that combines many of the attractive features of partnerships and corporations z Must file Articles of Organization with the Secretary of State and owners must enter into an Operating Agreement z Cost to form varies with the state

LLC Advantages
z Limit the member’s liability z Ability to obtain pass-through tax treatment z No limit on the number of investors

LLC Disadvantages
z Operating Agreement and tax issues can be very complicated z Investors typically prefer to invest in a regular C corporation

LLC Key Points
z Limited liability z Management varies z Profits and losses may be allocated as in a partnership z Usually LLC or Limited Liability Company must be included in the company name z Pass-through or separate entity taxation

LLC Key Points (2)
z Unlimited number of owners in most states z Ability to transfer member interests-subject to various limitations


				
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posted:5/5/2008
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