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Venable presented at the Washington, DC Economic Partnership's Doing Business 2.0 event (11/14/12).
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Choice of Entity and Formation:“TLC” for your Business
Washington, DC Economic Partnership
Joseph B. Walker, Esq.
Venable LLP
November 14, 2012
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© 2012 Venable LLP
Taxes
Liability Protection
Corporate Formalities
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© 2012 Venable LLP
Sole Proprietorship
Taxes: Pass-through taxation; ordinary income to
owner.
Liability Protection: None
Corporate Formalities: None
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© 2012 Venable LLP
Sole Proprietorship – Sources of Funding
Contributions from the owner.
Bank lending – based upon the credit worthiness
of the owner, and owner is personally liable to the
lender.
Third-party equity investment: Not available.
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© 2012 Venable LLP
General Partnership
Taxes: Pass-through taxation; ordinary income to
owners.
Liability Protection: None
Corporate Formalities: None
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© 2012 Venable LLP
General Partnership – Sources of Funding.
Contributions from the partners.
Bank lending – based upon the credit worthiness
of the partners, and partners are jointly and
severally personally liable to the lender.
Third-party equity investment: Partnership
interests may be sold to third-parties who are
willing to assume liability risks.
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© 2012 Venable LLP
Limited Partnership
Taxes: Pass-through taxation; ordinary income for both general and limited partners.
Liability Protection: No protection for general partners; limited liability for limited partners.
Corporate Formalities: Maintain distinction between general and limited partners.
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© 2012 Venable LLP
Limited Partnership – Sources of Funding
Contributions from both general and limited
partners.
Bank lending – varies.
Third-party equity investment: General
partnership interests may be sold to third-parties
who are willing to assume liability risks; non-
participating limited partnership interests may be
sold to third-parties who will not be participating in
management.
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© 2012 Venable LLP
Limited Liability Partnership
Taxes: Pass-through taxation; ordinary income to
partners.
Liability Protection: Limited liability for malpractice of
other partners; no protection for general liabilities of
the partnership.
Corporate Formalities: None
*Generally used in professions such as law firms, accounting firms, etc.
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© 2012 Venable LLP
Limited Liability Partnership – Sources of Funding
Contributions from partners.
Bank lending – varies.
Third-party equity investment: Partnership
interests may be sold to individuals who are
licensed to practice in the field in which the LLP
does business.
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© 2012 Venable LLP
“C” Corporations
Taxes: Double taxation
Liability Protection: Shareholder liability limited to
investment in the corporation.
Corporate formalities: Officers, annual meetings,
records, etc.
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© 2012 Venable LLP
“C” Corporations – Sources of Funding
Bank lending – based upon creditworthiness of
the Corporation.
Third-party equity investment: Shares in the
corporation may be sold to third-parties.
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© 2012 Venable LLP
“S” Corporation
Taxes: Pass-through taxation; ordinary income to
shareholders. (Can “check the box” to be taxed as a
“C” Corporation.
Liability Protection: Shareholder liability limited to
investment in the corporation.
Corporate Formalities: Officers, annual meetings,
records, etc. (Same as “C” Corporation)
Several statutory requirements to be a stockholder.
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© 2012 Venable LLP
“S” Corporation – Sources of Funding
Bank lending – based upon creditworthiness of
the Corporation.
Third-party equity investment: Shares in the
corporation may be sold to certain qualified third-
parties. (Limits equity investments)
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© 2012 Venable LLP
Limited Liability Company
Taxes: Pass-through taxation; ordinary income to members.
Liability Protection: Member liability limited to investment in the company.
Corporate Formalities: Flexible No statutory requirements to be a member.
*Entity of choice for most new businesses.
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© 2012 Venable LLP
Limited Liability Company – Sources of Funding
Bank lending – based upon creditworthiness of
the Company.
Third-party equity investment: Membership
interests in the Company may be sold to third-
parties.
