Your Legal Companion

Part 1

1. Business Entity Basics

• Why Your Choice of Entity Matters
• Sole Proprietorships
• General Partnerships
• Limited Liability Companies (LLCs)
• Corporations
• ...And the Runners-Up: Limited Partnerships, S Corporations, and RLLPs

2. Personal Liability Concerns

• How Your Choice of Business Entity Affects Personal Liability
• Using Insurance to Limit Liability

3. Forming and Running Your Business

• Forming and Running a Sole Proprietorship
• Forming and Running a Partnership
• Forming and Running a Limited Liability Company
• Forming and Running a Corporation
• Resources for Forming an LLC or Corporation

4. Money Issues: Taxes, Profits, Losses, and Investments

• Taxes
• Paying Out Profits
• Start-Up Losses
• Institutional and Venture Capital
• Planning for a Public Offering

5. Choosing the Right Business Entity: Real Life Stories

• Fast Food Fusion: A Start-Up Business Chooses a Business Form
• Bill and Barbara Seek Investment From a Relative
• Soaring Duck Designs Seeks Lower Taxes and a Structured Hierarchy
• Silikonics Creates an Entity to Attract Outside Investors
• The Surf Side: From Lunch Counter to LLC to Corporate Franchise

Part 2

6. Converting a Sole Proprietorship to Another Entity

• Converting a Sole Proprietorship to a Partnership
• Converting a Sole Proprietorship to an LLC
• Converting a Sole Proprietorship to a Corporation

7. Converting a Partnership to Another Entity

• Converting a Partnership to a Sole Proprietorship
• Converting a Partnership to an LLC
• Converting a Partnership to a Corporation

8. Converting an LLC to Another Entity

• Converting an LLC to a Corporation
• Converting an LLC to a Sole Proprietorship
• Converting an LLC to a Partnership

9. Converting, Dissolving, and Selling a Corporation

• Converting a C Corporation to an S Corporation
• Liquidating and Dissolving a Corporation
• Selling a Corporation

Part 3

10. Doing Business Out of State

• Doing Business Out of State
• Qualifying to Do Business
• Paying and Collecting Taxes in Other States
• Lawsuits in Other States
• Internet Issues

Appendix: State Website Information

• State Business Entity Filing Websites
• State Tax Office Websites
• State Securities Office Websites

Index

Your Legal Companion

One of the most important and difficult choices you make when starting a business (whether by yourself or with others) is trying to figure out whether a limited liability company (LLC) or corporation will best meet your needs. An equally difficult decision occurs if you have already organized your business but want to explore the possibility of converting to a business entity with more favorable legal and tax characteristics.

In both cases, this book will help you with your decision.

Although the focus of this book is on choosing whether to form an LLC or corporation, you cannot make an informed decision without learning about all the types of business entities—including sole proprietorships, partnerships, LLCs, and corporations. This book explains the legal and tax characteristics of each of these business entities and the basic rules for converting one type of business to another.

This book also provides information about some of the less well known ways of structuring a business. For example, two legal spin-offs of the basic partnership form—the limited partnership and the registered limited liability partnership—are discussed. This book also covers S corporations, which have some characteristics of the more well known C corporation (including limited liability) but are taxed like a partnership.

I’ve divided this book into three parts.

Part One discusses basic information about each type of business entity. It includes the following chapters:

• Chapter 1 discusses each type of business entity, including the relative advantages and disadvantages of each.
• Chapter 2 explains how your choice of entities affects your personal liability for debts against your business.
• Chapter 3 examines the relative ease with which each of the entities can be formed and managed.
• Chapter 4 covers how each entity deals with profits, losses, investments, and taxes.
• Chapter 5 provides examples of entity choices for various types of businesses.

Part Two includes the following chapters:

• Chapter 6 discusses converting a sole proprietorship to another entity.
• Chapter 7 discusses converting a partnership to another entity.
• Chapter 8 discusses converting a limited liability company to another entity.
• Chapter 9 discusses converting a corporation to another entity, and reorganizing or dissolving a corporation.

Part Three discusses doing business out of state:

• Chapter 10 explains how doing business out of state may affect your choice of entity.

This book also includes links you can use to find information regarding your state’s corporate and LLC rules, as well as tax and securities laws information (see the appendix).

Business law and tax rules can get a bit complicated. Don’t worry. They’re presented here in real-life contexts, without off-putting legal or tax jargon, and without the technicalities best left to legal and tax professionals. By the time you finish this book, you’ll understand what each type of entity has to offer, and you’ll be ready to choose the right structure for your company. By the way, Nolo (www.nolo.com), the publisher of this book, provides many ways to assist you when it comes to corporations and LLCs, including assistance with state filings, helpful books, and lots of free information. Go to www.nolo.com and visit the “Business Formation” area.

COVID-Related Information for Small Businesses

At the time of this edition, federal legislation has passed and is pending to address the challenges faced by small businesses as a result of the COVID-19 pandemic social and economic shutdown. For example, under the CARES Act’s Small Business Administration Paycheck Protection Program (PPP), small business owners can apply for funds to help them maintain payroll, hire back laid-off employees, and cover applicable overhead. Also, the IRS has provided employer tax credits and relaxed filing deadlines during the COVID-19 crisis. For current information on various programs, visit the following government websites: Small Business Administration (SBA) website at www.sba.gov. Enter “Paycheck Protection Program” (PPP) in the site search box. U.S. Treasury website at https://home.treasury.gov. Enter “CARES Act” in the site search box. IRS website at www.irs.gov. Enter “Coronavirus Tax Relief for Businesses and Tax-Exempt Entities” in the site search box. Your state secretary of state website and tax agency website (see the appendix). Look for state-sponsored COVID-19 financial and tax relief programs.

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