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Law And Business Entity Chart Breakdown Outline

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This is an extract of our Law And Business Entity Chart Breakdown document, which we sell as part of our Law and Business Planning Outlines collection written by the top tier of Oklahoma City University School Of Law students.

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Entity Breakdown

SP

GP

LLC

LP

LLP

Formation

Business Planning C Corp

Certificate of Incorporation

Certificate of Incorporation

Default - no filing

Default - no filing

Must file under state LLC Act

Must file w/Secretary of State

Must file a certificate w/OK Secretary of State

Mgmt

Clutts S Corp

Board of Directors manages business, not S/Hs

Board of Directors manages business, not S/Hs

Only 1 owner who directly manages everything

Partners have =
rights to manage the business, unless they agree otherwise

MemberManaged: Mgmt is shared among the owners

Limited Partners don't have mgmt rights - mgmt is in hands of General Partners

Partners have =
rights to manage the business, unless they agree otherwise

Ltd. Partners are exempt fr liability for debts of firm

(1) Full Shield States: offer protection fr liability for debts of the business &
acts of others

Liability Personal

Mgr.-Managed: day-to-day operations conducted by "mgrs." Ltd Liability: S/Hs, board members, &
officers not personally liable for business debts of business
- paid out of corp assets

Debts paid from the personal assets of the owner.

Individuals are always liable for their personal wrongdoing & for Ks they guarantee

Partners personally liable for the debts of the business---
arguably more risky than SP bc also liable for acts of other partners &
bc are fragile

Liability of owners ("members") is limited - not liable for debts of the business

General Partners are not exempt from liability for debts of firm

S/Hs - Veil Piercing

Taxes

Both have ltd. liability for tortious acts of other partners

(2) Partial Shield States: ltd. liability which shields partners fr vicarious liability for the acts of others, but not debts of business

Flow-thru Taxation

Double Taxation

Net income fr business is TI to the SP

Flow-Through

Flow-Through, UNLESS an election is made to be treated as a corporation

Flow-Through

Flow-Through

Exiting

S/Hs - Veil Piercing

Ltd Liability: S/Hs, board members, &
officers not personally liable for business debts of business - paid out of corp assets

Sale of Shares

Sale of Shares

Easy - only 1 person

Can exit whenever (subject to K), but cashing out can be difficult if nobody interested in buying

Doesn't have to cause a dissolution of the LLC

More confined

Same as GP - can exit at any time, but may be difficult cashing out - usually contractual buying arrangements w/fellow partners

Usually contractual buyout arrangements w/fellow partners

1 Under many statutes, LPs are entitled to a return of their capital after some period after giving notice of withdrawal, unless p'ship agreement specifies otherwise

Self-Employment Taxes

Clutts

Business Planning

Entity Breakdown

S Corp

C Corp

SP

GP

LLC

LP

S/H in S Corp only pays SE taxes on the portion of the income that's attributable to services & any amt in excess of that is considered a return on your investment & is not subject to SE tax

Taking out salary in C Corps is subject to selfemployment taxes, so would want to pay out dividends instead

A partner's distributive share of income fr. a p'ship constitutes earnings fr selfemployment

A partner's distributive share of income fr. a p'ship constitutes earnings fr selfemployment

GR: Not going to be treated like a limited partner &
will have to pay SE taxes

LPs are generally not subj. to SE taxes

Want to fit into limited p'ship exception

Subj. to SE taxes on the income IF 1 of 3 things:

LLP

GP under state law is exposed to SE taxes

(1) have personal liability for the debts of LLC (2) have authority to K OBO LLC, or

Sale of Assets

Gains realized on sale of the assets are taxed to the owners in proportion to their interests in the business, &
after those taxes are pd the owners pocket the net proceeds

Worst option b/c of dbl tax, but is mitigated

Gains realized on sale of the assets are taxed to the owners in proportion to their interests in the business, & after those taxes are pd the owners pocket the net proceeds

Gains realized on sale of the assets are taxed to the owners in proportion to their interests in the business, & after those taxes are pd the owners pocket the net proceeds

Gains realized on sale of the assets are taxed to the owners in proportion to their interests in the business, & after those taxes are pd the owners pocket the net proceeds

Gains realized on sale of the assets are taxed to the owners in proportion to their interests in the business, & after those taxes are pd the owners pocket the net proceeds

Gains realized on sale of the assets are taxed to the owners in proportion to their interests in the business, &
after those taxes are pd the owners pocket the net proceeds

Accumulated Earnings

DO increase basis

Do not increase basis (taxable gain can be huge then)

DO increase basis

DO increase basis

DO increase basis

DO increase basis

DO increase basis

Diff. Ownership Interests

(3) participate in the bus of the LLC
>500 hrs during taxable yrs

Very little flexibility---can only have 1 class of stock!

Can offer diff types of common
& preferred stock

Can customize &
define diff interests in the operating agreement

Offer most flexibility: member-managed vs. mgr.-managed

Offer most flexibility - Ltd Partners vs. General Partners

Can customize &
define diff interests in the operating agreement

Can customize &
define diff interests in the operating agreement

Can customize &
define diff interests in the operating agreement

Only voting &
non-voting common stock

2

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