| Today there are so many different options when it | | | | Limited Liability Partnership |
| comes to choosing a business formation. In order to | | | | A limited liability partnership is, generally speaking, a |
| know which best suits your business needs, you need | | | | general partnership except that ALL of the partners |
| to talk to your lawyer. Here is a general description of | | | | may enjoy limited liability, meaning that each may only |
| some of your options. Reading this before talking to | | | | be liable to the extent they have invested in the |
| your lawyer will allow to have a more informed | | | | business. (Note: not all states recognize the LLP form). |
| discussion when the time comes for you to choose | | | | Limited Liability Company |
| the right form for your business entity: | | | | A limited liability company allows all members to enjoy |
| Sole Proprietorship | | | | limited liability. It also allows members to report gains |
| A sole proprietorship is a business owned by one | | | | and losses of the business on their personal income |
| individual who is considered to be self-employed. A | | | | tax forms. One of the benefits also includes the fact |
| sole proprietor may still have employees working for | | | | that LLCs follow the statutory scheme of a |
| him/her. A sole proprietor reports gains and losses on | | | | C-corporation. This is beneficial because the statutes |
| their own personal income tax form since a sole | | | | and case law of corporations in Minnesota, and other |
| proprietorship is not legally considered a separate | | | | states, is very developed which allows lawyers to |
| entity. The sole proprietor may be held personally | | | | more easily predict how certain situations will be |
| responsible for the debts and liabilities of the business. | | | | handled or viewed by a court of law. |
| General Partnership | | | | C-Corporation |
| If more than one person own and carry on a business | | | | A corporation is state law creation while the C simply |
| for profit, state statute declares that business a | | | | signifies how the corporation is taxed for federal |
| general partnership. It is the default entity. This means | | | | income tax purposes. C-corporations are taxed both |
| that even though two people own a business together | | | | at the entity level, on profits the business makes, and |
| and have not filed anything with the state and do not | | | | at the shareholder level, on distributions made to |
| intend to form a "general partnership," legally they have. | | | | shareholders. |
| It does not matter that they did not intend to. Like a | | | | S-Corporation |
| sole proprietorship, general partners report the gains | | | | Both the S and C corporations are formed and |
| and losses of the general partnership on their own | | | | operate the same in regards to state law purposes. |
| personal income tax forms. The general partners may | | | | The difference lies in how they are treated for federal |
| be held personally responsible for the debts and | | | | income tax purposes. A S-corporation pays no entity |
| liabilities of the business. | | | | level tax allowing it to pass-through any gains and |
| Limited Partnership | | | | losses directly to its shareholders who report them on |
| A limited partnership is generally formed when there is | | | | their personal income tax forms. In order to qualify for |
| one or more owners of the business that simply want | | | | an S-corporation election, certain criteria need to be |
| to invest in the business and have no other part of it. | | | | met. These qualifications limit the number of |
| The investor-owners become the limited partners and | | | | shareholders as well as who those shareholders may |
| the other owners become general partners. The limited | | | | be. |
| partners generally only have liability to the extent they | | | | As you can see, there are many different options |
| have invested in the business. The general partners | | | | when choosing a business form. These options need |
| may be held personally responsible for the debts and | | | | to be taken into consideration in order to make the |
| liabilities of the business. Partners report gains and | | | | right choice for you. Talking to your lawyer will ensure |
| losses of the business on their own personal income | | | | that you choose the form that will provide you and |
| tax forms. | | | | your business with the most benefits. |