Business Forms
Sole Proprietorship
Owned by a single individual who is personally liable for all of the obligations of the business since there is no legal separation between the owner and the business.
This is the easiest way to do business. Do not have to create an entity and can do business under a different name by filing a fictitious name form with the State.
All the income from the company goes on the owner’s tax return. Single taxation. High liability but good tax treatment. This business form provides no liability protection for the owner.
Partnership
A partnership is formed if two or more persons go into a co-owned business without any thought or planning of what the relationship is. An oral agreement to share profits may be sufficient to establish the existence of a general partnership even though initial financial contributions are unequal. Sometimes referred to as a “general partnership.
Flow Through Taxation – The partnership is not tax, it flows through to the partners. Each partner is taxed on his share of the profit regardless of whether he receives any cash distributions.
Liability is unlimited. Each partner is personally liable for the entire share, not just their own share. Each partner owes 100% of the liabilities.
Limited Liability Partnership (LLP)
A general partnership in all respects except that the statute provides that partners have no personal liability for firm obligations that exceed the assets of the general partnership. Partners in an LLP, however, have full personal liability for claims arising from their own misconduct.
Need to file a form with the state to be an LLP
Partners are liable for their own actions and actions of those under their control and supervision; partners not typically liable for the debts of the LLP.
Not a taxable entity. Income/loss is passed through to the partners (Flow Through Taxation).
MO § 358.150 allows for limited liability for a LLP except for a partners own negligence and misconduct.
Limited Partnership (LP)
Must have at least one general partner and can have many limited partners. The general partner has unlimited liability and usually manages the business. The limited partners are the investors with no management role and limited liability. Chapter 359 of RSMo.
Taxed like a regular partnership. Partners pay for their portion of profit.
FYI: IRS use to make LP’s that functioned like corporation pay corporation taxed. Now there is “check the box” to indicate which one the entity would like to be taxed as.
A Certificate of Limited Partnership has to be filed with the Secretary of State. There will also be an LP agreement but this does not have to be filed with the Secretary of State.
Lately, the general partner will be assigned to a corporation so that there is limited liability for everybody
Limited Liability Limited Partnership (LLLP)
An LLLP is a limited partnership with both general and limited partners, but the general partners have the protection of the LLP election.
Form the partnership same as the LLP only adding the step of filing an extra form to limit general partners liability. Everything else is the same.
Limited Liability Company
Provides limited liability for all partic
ompanies in Delaware, a lot of issues have been litigated and there is a lot of law to answer questions.
If you’re going to be international, peeps are more comfortable with Delaware.
Shareholders/Underwriters are more familiar and comfortable with Delaware corporation.
Corporation probably has the safest limit on liability, although LLC’s are up there. If you are a mom and pop, likelihood that people would do business with you on a limited liability is remote. They will want a personal guarantee. SBA loan they want all assets of business as collateral and a guarantee from any shareholder who owns more than 20% and a 2nd mortgage on your house. So the idea of a liability free business for small companies is non-existent.
Piercing the Corporate Veil– Permits creditors of closely held corporations in limited circumstances to recover directly from directors, officers, or shareholders. If you don’t operate your business in a business-like fashion than a creditor can hold one of the principles of a business liable for allowing the company to suck.
Reification means that you personify something, treated like a human being. List of constitutional rights that it has and doesn’t have. Human rights no, procedural yes. It is reified to the extent that we treat it as a separate thing or person.
What is a corporation?
