Corporations, Partnerships, etc.

Marshall M. Bandy, Jr. P.C. is a law office concerned about the fairness and well-being of the local community, both individuals and businesses. This general law practice has handled a wide variety of cases in the fields of domestic matters, estate planning, wills, trusts, contracts, probating estates, personal injury, incorporation of small business, real estate, adoption, bankruptcy, business law and criminal defense.

ATTORNEY BIO

Over his 35 years of practice Marshall has helped form dozens of business enterprises of all types.

What is the difference between a proprietorship, partnership, joint venture, Limited Liability Company and Corporation?

Proprietorhsip- The definition of a sole proprietorship (dba doing business as) is when a person does business as himself. There is no legal separation between the entity which is the business and the person. For tax purposes, both use the person's social security number as identification and both file one tax return (although business expenses can still be deducted).

Like other businesses, a sole proprietor needs to have a license to do business in his town.

The business assets may be sold which, in effect, transfers the business.

At the death of the sole proprietor, the business is usually dissolved. The proprietor's estate, however, can sell the assets or continue the business if the survivors have the necessary skills.

There are no legal costs to forming or maintaining a sole proprietorship other than obtaining a business license and trade name, if needed.

Partnership

Limited Partnership Business Info

LP stands for Limited Partnership which is different from a General Partnership (or just "partnership"). A limited partnership allows for limited partners and general partners. A limited partner is one who invests, does not participate in running the partnership, and is liable only up the amount of his investment. A Limited Partnership must have one or more general partners who manage the business and who are personally liable for partnership debts. Although one partner may be both a limited and a general partner, at all times there must be at least two different partners in a Limited Partnership. A Limited Partnership must file with the state.

General Partnership Business Info

A general partner may or may not invest, participates in running the partnership and is liable for all acts and debts of the partnership and any member of it. A General Partnership does not have limited partners. For a General Partnership, there is no registration with the state or even written agreement necessary for a general partnership to be formed. The legal definition of a partnership is generally stated as "an association of two or more persons to carry on as co-owners a business for profit" (Revised Uniform Partnership Act § 101 [1994]). Although a partnership can be implied by law, if you are forming a partnership you should always have a partnership agreement so that you are not at the mercy of the laws which are implied without one. Most of the law of General Partnerships applies to Limited Partnerships.

In a General Partnership, each of the partners (there can be more than 2) shares in the profits and shares in the liability of the partnership, including losses, unless the partner is a limited partner. A partnership is considered an association of co-owners for tax purposes, and each co-owner is taxed on his or her proportional share of the partnership profits.

Like other businesses, a partnership needs to have a license to do business in towns in which it has offices and may use an assumed name, so that Blow LP or GP could operate as Blow Holes.

All partners must consent in sale of the assets of the partnership. A partner's interest in a partnership is considered personal property that may be assigned to other persons, but, if transferred, the transferee only receives the financial benefit and does not become a partner.

The death of a partner terminates the partnership, and the filing a dissolution of the partnership with the state also terminates the partnership.

Advantages of Partnership

Partnerships typically have less costs, paperwork and state registrations involved in both formation and upkeep. However, without written documentation, the partnership becomes subject to significant defaults state laws.

With regard to taxes, the partnership is not a separate taxable entity, but instead the profits pass through to the partners who pay for them as income tax.

Disadvantages of Partnerships

In a General Partnership, each partner is liable for the acts of the others and financial losses of the partnership, and there is no protection of personal property as there is with a corporation. Any partner without the other may bind the partnership. Money and property contributed to the partnership becomes owned by the partnership unless otherwise stated and the contributor is not entitled to its return unless stated in the partnership agreement.

Partnerships vary in legal requirements and liabilities by state, do not have the easy of transfer and investment that a corporation structure provides and therefore are regarded as less preferable to other business forms for investment.

What is a joint venture?

A joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares.

Corporations, C and S corporations:

Definition C Corporation

A "C Corporation" is a corporation which is taxed under Subchapter C of the Internal Revenue Code and is the default corporation formed by incorporating. A corporation is a legal and tax entity by itself. It is similar to a person in that it has its own assets and its social security number, called a Federal Tax Identification Number. Like other businesses, a C corporation needs to have a license to do business in towns in which it has offices and may use an assumed name, so that Blow Inc. could operate as Blow Holes. A corporation's assets or ownership is easily transferred through sale of the assets or sale of stock. The death of the shareholders or directors or officers of a corporation has no effect on the existence of the corporation. A corporation must be legally dissolved to terminate.

Advantages of C Corporation

The primary advantage of forming a corporation is that it is a separate legal and tax entity from its owner(s). If you form a corporation, the corporation will grant you shares. As a shareholder, you are not liable for the debts or acts of the corporation as long as you obide by the corporate procedures required by law. The most you can lose as a shareholder is the amount you have paid for your shares. This means that if the corporation is sued and losses, they cannot take your home and your personal car and assets.

Another advantage is that you are regarded as more professional and business-like if you are a corporation. Venture capital and investors usually prefer to invest in corporations as they provide the most flexible and consistent procedures for business and investment.

C Corporations' Tax Advantages

Be sure to always consult your accountant since tax laws change with time and jurisdiction. If you are a C corporation, then the corporation pays taxes on its income, shareholders personally pay taxes on any dividends and employees pay income tax on salary. However, if the corporation pays salary, instead of dividends, then it may deduct the salary expenses so that the income is only taxed once. The corporation may deduct expenses for employees, health insurance and other items also.

Disadvantages of C Corporation

The costs and effort of maintaining a corporation are higher due to legal requirements about an annual shareholder meeting, corporate minutes and other procedures which must be followed. Also, a corporation which has an office in a state other the one its incorporated in must register as a foreign corporation in that state. The cost of incorporation, maintaining an agent for service (a person to receive legal documents required by law), registered as a foreign corporation and upkeep of corporate procedure documents is higher than some other forms of business.

What Is an S Corporation?

An "S Corporation" is a corporation which is taxed under Subchapter S of the Internal Revenue Code and must elect to do so shortly after the corporation is formed with the IRS. A corporation is a legal and tax entity by itself. It is similar to a person in that it has its own assets and its social security number, called a Federal Tax Identification Number. The shareholders of a corporation must agree to elect to be an S corporation shortly after incorporating. Like other businesses, a S corporation needs to have a license to do business in towns in which it has offices and may use an assumed name, so that Blow Inc. could operate as Blow Holes.

A corporation's assets or ownership is easily transferred through sale of the assets or sale of stock.The death of the shareholders or directors or officers of a corporation has no effect on the existence of the corporation. A corporation must be legally dissolved to terminate.

Advantages

The primary advantage of forming a corporation is that it is a separate legal and tax entity from its owner(s). Be sure to always consult your accountant since tax laws change with time and jurisdiction. If you form a corporation, the corporation will grant you shares. As a shareholder, you are not liable for the debts or acts of the corporation as long as you obide by the corporate procedures required by law. The most you can lose as a shareholder is the amount you have paid for your shares. This means that if the corporation is sued and losses, they cannot take your home and your personal car and assets.

If you are a S corporation, you are not subject to the double taxation which can occur when a corporation pays income tax and then shareholders pay tax on dividends as well. There are also other tax benefits.

Disadvantages

An S corporation may have no more than 100 shareholders, may have only one class of stock, may not own more than eighty percent of another corporation, and may not have shareholders who are not US citizens or resident aliens.The costs and effort of maintaining a corporation are higher than some other business forms due to legal requirements about an annual shareholder meeting, corporate minutes and other procedures which must be followed. Also, a corporation which has an office in a state other the one its incorporated in must register as a foreign corporation in that state. The cost of incorporation, maintaining an agent for service (a person to receive legal documents required by law), registered as a foreign corporation and upkeep of corporate procedure documents is higher than some other forms of business.

Marshall M. Bandy Jr, PC
670 Lafayette Street, Ringgold Ga, 30736
Phone (706) 935-2201 Fax (706) 965-8980