1. The Entrepreneur’s
Options for
Business Organization

2. Issues to Consider When Choosing
a Business Structure:
Cost / Maintenance
• State filing fees, annual
filings, etc.
Tax Liability
Legal Liability
• Personally liable or
• Protect your own assets with a
corporate shield.
Ownership / Management
• Shareholders or Partners?

3. Types of Business
Structures:
Sole proprietorship
General partnership
Limited Liability
Company
Corporation
• "C" Corporation
• "S" Corporation

4. Sole Proprietorship
A business owned & run by one person.
Few recurring costs beyond fees for state
business license and to maintain business
name.
• (No state filing necessary.)
You file taxes for the business on Schedule C
of your personal income tax return.
Individual and business are identical.
• Not protected from personal liability.

5. Sole Proprietorship:
Examples
Grandma’s homemade sweaters that
she sells on eBay and to family
and friends.
Jimmy’s grass-cutting services.
Bob’s auto repair.

6. General Partnership
2 or more legal entities (persons or other
businesses) form a general partnership.
Each partner is liable for any of the
other partners’ mistakes.
All partners are considered self-employed
for purposes of income tax.
The partnership itself doesn't pay any
taxes.

7. General Partnership:
Examples
Two dentists working together in
an office.
Flower shop owned by two
friends.
Two people wanting to make a
movie.

8. Limited Liability Company (LLC)
Has a structure similar to a partnership
Members of the LLC are referred to as “Owners”
LLCs enjoy
• the tax and liability benefits of corporations and
• the management structure of a partnership.
Percentage interests instead of shares.
Very flexible
• operating agreement can be specifically tailored
to the type of business.

9. LLC: Examples
Film productions
Professional service organizations
Real estate ventures
Small businesses with more than one
partner

10. "C" Corporation
A corporation is an independent legal entity
owned by shareholders
Limited liability unless a court finds that you
do not follow corporate formalities and the
corporation is really an "alter ego" -
Piercing the Corporate Veil.
Can have multiple classes of stock.
Double taxation - Income is taxed at the
• corporate level and
• shareholders have to pay taxes whenever they
receive income from the corporation.

11. “C” Corporation: Examples
Many big companies
you have seen
• Sony
• Apple Computer
• IBM

12. "S" Corporation
Structure designed to allow the business
to avoid double taxation
Most complex to create and administer
Max 100 shareholders,
• only one class of stock,
• shareholders must be domestic individuals.
Allows shareholders to claim share of
corporation's income on personal tax form,
eliminating "double taxation.“

13. “S” Corporation: Examples
Small video production company.
Any of the small-business
examples from before (flower
shop, etc.) can be set up as an
“S” Corporation.

14. Simple Steps for Setting up a
Business Entity
1)Decide which state you want to
form your company.
2) Choose a name for the company
(and make sure it’s available)
3) Fill out the appropriate
form(s).