Choice of Entity

3 May 2008

Right now, we’re getting great advice about choosing the type of entity for the new startup companies…

The lineup…

  1. General Partnerships
    • Limited Partnerships
    • Registered limited liability partnership
  2. Corporations
    • C-Corp
    • S-Corp
  3. Limited Liability Companies

Owners…

  1. Partners in the LP
    • General partners
    • Limited partners with limited liability
  2. Shareholders
  3. Members

Formation and agreement on how the organization runs…

  1. Handshake –> complex Partnership Agreement
    • General parnership doesn’t require any filings
  2. Articles of Incorporation filed with Probate Judge / Bylaws / Agreement
  3. Articles of Organization filed with Probate Judge / Operating Agreement

Liability…

  1. General liability / Special rule for limited partners say they have limited ability to participate in the company
  2. Shareholders are NOT liable
  3. Members not liable

Control / Management…

  1. All partners are bosses
  2. Board of Directors and Officers
  3. Choice of Member-Managed or Manager-Managed

Transferability of Ownership Interest

  1. Limited Free Transferability 
  2. Yes
  3. Limited Free Transferability

Durability of entity…

  1. Fragile – any withdrawal creates issues
  2. Perpetual
  3. Limited perpetual durability

Taxation

  1. Pass-through
  2. Two-tiered for C-corp / Pass-through for S-corp
  3. Pass-through (with 2 members or more, check-the-box to choose… with only 1 member, it is a “disregarded entity” then it is treated as sole proprietorship)
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