1	Legal and Tax Issues Entrepreneurship Dr. Jeff Shay
2	Legal and Tax Issues The information in this module will provide you with a general overview of legal and tax issues We strongly recommend that you consult an experienced attorney and/or accountant when you apply any of the contents of this module
3	Legal form of your business There are a variety of legal forms for your business, these include: Sole Proprietorship Partnership C-Corporation S Corporation Limited Liability Corporation (LLC) Limited Partnership Let’s take a closer look at each…
4	Sole Proprietorship Owners: 1 Start-up costs: file a “Doing Business As” (DBA) and license Liability: owner liable for all claims Life of business: dissolution with death of owner Transfer of interest: owner free to sell Profit distribution: profits to owner Management control: owner has full control
5	Sole Proprietorship Advantages Fewer legal documents when starting the business Simple financial reporting Owner makes all decisions Owner has complete control of profits and takes full responsibility for success Disadvantages Unlimited liability Growth may be limited due to limited financial and management resources
6	Partnership Owners: no limit Start-up costs: file DBA; attorney fees for partnership agreement Liability: general partners liable for all claims; limited partners only for amount of investment Life of business: dissolution on death or separation of a partner unless otherwise specified in agreement Transfer of interest: general partner requires consent of other generals to sell interest Profit distribution: profits shared based on partnership agreement Management control: shared by general partners according to agreement
7	General Partnership Advantages Expertise of more than one person in ownership Shared responsibility Personal assets of several owners may help obtain financing Disadvantages Unlimited liability Each partner is responsible for 100 percent of company debts unless otherwise stated Each partner may be held liable for the actions of other partners
8	Limited Partnership Advantages Limited partners cannot lose more than the amount invested Limited partners are not liable for company debts or claims from lawsuits Disadvantages Limited partners cannot be active in daily management More legal documents than general partnership
9	Limited Liability Company (LLC) Owners: no limit Start-up costs: attorney fees for organization, documents, filing fees Liability: members liable as partners Life of business: continuity of life Transfer of interest: free transferability of interests Profit distribution: profits shares based on member agreement Management control: rests with management committee
10	Limited Liability Corporation Advantages Members have limited liability Taxed as proprietorship or partnership Fewer legal requirements than corporation Disadvantages Need for legal advice More legal requirements than proprietorship or general partnership when starting
11	C-Corporation Owners: no limit on shareholders Start-up costs: attorney fees for incorporation documents, filing fees Liability: shareholders liable to amount invested; officers may be personally liable Life of business: no effect Transfer of interest: shareholders free to sell unless restricted by agreement Profit distribution: paid to shareholders as dividends according to agreement and shareholder status Management control: rests with the board of directors appointed by the shareholders
12	C-Corporation Advantages Limited liability for stockholders Business continues if there is a change in stockholders Disadvantages More paperwork when starting than proprietorship or general partnership Required annual meetings More paperwork if expanding into other states Taxed on both profits and dividends
13	S-Corporation Owners: Limited to 35 shareholders Start-up costs: attorney fees for incorporation documents, filing fees Liability: shareholders liable to amount invested plus amount of any loans shareholder made to company Life of business: no effect Transfer of interest: shareholders free to sell unless restricted by agreement Profit distribution: paid based on stock ownership % Management control: rests with the board of directors appointed by the shareholders
14	S-Corporation Advantages Avoids double taxation: only that portion of the profits that are passed on to shareholders are taxed Disadvantages Subject to strict requirements regulating structure, membership, and operations
15	Legal form and taxes Sole proprietorship Income taxed as part of personal income Partnership Entity not subject to tax Partners subject to tax on their share of income; reported on personal income Limited Liability Corporation Entity not subject to tax Individuals pay personal income tax on the money they receive C-Corporation Taxed at both corporate and individual level
16	End of Modules You have now completed our modules We suggest that you continue along with developing your business plan and to visit with the appropriate recommended consultants if you need further assistance