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Sunday, June 17, 2012

US Business Entities

Sole Proprietor - An individual in the US is considered a business entity and can run a business without a formal documents. The sole proprietor is still responsible for filing personal taxes. The sole proprietor may get a tax id and register a dba(doing business as): must be registered in each county of the state it wishes to operate in. One must register the dba at the local county clerk.
  • Advantage - easy to form and setup, simple tax structure, little or no formal documents
  • disadvantage - personally held liable for all debts and obligations, must raise own capital.

Partnership - Like a sole proprietor but involves a minimum of two people. though not required, legals documents should be drafted for the protection of each partner should conflicts arise.

  • Advantage - easy to form and setup, simple tax structure, little or no formal documents required although highly recommended. Partners can combine resources.
  • disadvantage - personally held liable for all debts and obligations, must raise own capital.

Limited Liability Company - Provides member(s) with the legal protection benefits of a corporation while maintaining the simple tax structure of a sole proprietorship or partnership. A member of an LLC can't be held personally liable for the debts or obligations of the company. An LLC must be registered in every state in the union it wishes to operate in.

  • Advantage - Simple tax structure of a proprietorship or partnership but gives members the legal protection afforded to shareholders of a corporation.
  • Easier to raise capital
  • Disadvantage - Must be legally recognized in each state it wishes to operated in. Formal documents are required at the state level.

Corporation - is recognized at the federal level and therefore can operate in any state in the union once formed. Owners are known as shareholders and are taxed personally on income derived from the company in addition to the tax the corporation is held responsible for.
  • Advantage - Shareholders are not personally held liable for any legal obligation or debt.
  • Easiest to raise capital
  • Disadvantage - Complex tax structure and legal documentation. Shareholders are taxed in addition to the corporation.

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