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ENTITY SELECTION FOR BUSINESS and ASSET PROTECTION
In the beginning their was the sole proprietor but her business died with her, so another way had to be found.
This way was the partnership, and it was good but when a partner died so did the business so yet another entity was needed and along came the corporation. You could drop dead but the corporation marched on.
The partnership however did not go quietly into the night but evolved spawning the limited partnership, silent partnership the professional partnership, the Family Limited Partnership.
The corporation grew to be the biggest of the big while still having tens of thousands of new ones form every year. The corporation started to want to be more like a partnership and soon there were both S Corporations and Limited Liability Companies.
Because in places like California everybody wants to own a piece of the action and be right on the cutting edge, we were spawning LLC's like there was no tomorrow, but our LLC's became domestic to the point of having very little bark and no bite.
So we discovered Out of Jurisdiction, Jurisdictions which still had big thick skinned LLC's that were harder to stop then a charging buffalo. Ask the author about some of these asset protecting monster. You will be glad you did when all your credit walks away with is a charging order.
Sole Proprietorship: One person doing a job, or working at a craft, creating art, or selling products. The sole proprietorship offers no protection, but some people make large fortunes using this non-entity
MOM &POP: Married Proprietorship. No protection but again you can do really well and many have. Think of MOM and POP real estate barons.
General Partnership: Mine is yours and your is mine and that particularly applies to liability and debt.
Limited Partnership: One partner has the right to run the business but the limited partners can share in the gains and losses. They just can't say anything. The General Partner has all the protection of a sole proprietorship, but usually has limited what he can lose through the use of other asset planning tools.
Family Limited Partnership: This is also known as a flip, It is a limited partnership with consanguinity. That's right you and your bratty little sister working silently under the watchful eye of MOM and DAD. Remarkably many of these entities have scored big when properly constructed and run.
Corporation: A corporation is a legal fiction. It is an entity created by obtaining corporate articles from a state and run pursuant to agreed upon rules called bylaws. The corporate form consists of having directors, to oversee officers who conduct the daily business. The owners of the business are stockholders. The owners normally only get to voice their opinions once a year at the annual meeting. The directors normally only get to voice their opinions at meetings of the board of directors. The officers get to voice their opinions all of the time but if the board doesn't like those opinions they can get rid of the officers. If the shareholders are dissatisfied with the board of directors they can give them the boot.
It seems like the Officers have the best deal and in some ways they do. But as we know from late 1990s and early 2000's these are the people who face the wrath of the SEC and Stockholders, etc. when it turns out that they made a mistake. Until recently many boards have acted in a ceremonial manor but they found after Enron that the SEC likes the taste of Director as much as officer. Finally the shareholder has virtually no say, but likewise no liability. When you consider those who invested small amounts early in Microsoft and Starbucks, two just name two, and are now sitting on fairly large fortunes, it doesn't seem like a bad place to be.
Publicly Traded: What I was talking about in the last paragraph were publicly traded corporations. I don't work with them, yet, but if anyone out there is looking for a real tiger of an attorney, give me a call.
C-Corporation: This is the standard form of a corporation. It is an entity that exists apart from its owners, directors, and share holders, It pays its employees, officers, directors and shareholders. It pays tax just like other legal persons. A C-corporation could technically exist forever after being incorporated. It need not be owned even in part by the person or person's who founded the entity, because to a degree its ownership portions stock are fairly liquid and easily sold.
S-Corporation: An S corporation, is a state formed entity that the federal government allows to be taxed at the owners level. It is a "pass-through" entity meaning that all of the income and losses, normally, pass through to the shareholders. Because of this feature the owners of the entity avoid double taxation, avoiding income tax at the Corporate level. California charges a corporate level tax of eight hundred dollars a year. There may only be 100 shareholders in an S-Corp, but since S corporations and own parts or complete C corps they can be very wealthy.
CIRCULAR 230 [please read this]
DISCLAIMER AGAINST RELIANCE
Maintenance of your entity is extremely important and often overlooked. If you need to get your corporate records in order we can help you. Please call Gerard W. O'Brien and Associates and tell us that what you need help with and we will help you get your corporation, LLC, LP, etc. in order. C
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