PCM Legal Structures Flashcards
Sole Proprietorship
Business entity owned by an individual.
pros - Has total control over business.
cons - no liability protection, all assets subject to risk if claim filed. difficult to sell business.
Taxes: taxes not paid separate but through the owners personal taxes. no incurred tax. files schedule c form 1040.
General Partnership
2+ architects that practice together
pro: every state has uniform partnership act, imp to draft and sign a partnership agreement
con: partners are liable to debts and losses from other partners actions.
Taxes : files federal return on their share does not pay tax on total income. flow through entity
Limited Partnership
At least 1 general partner and 1 limited partner
GENERAL PARTNER : Invest in the business and are personally liable
LIMITED PARTNERS: Invest, receive portion of profits, and are only liable for their own investment
Pro: Partnership allows sharing of different skills and distribution of management and risk.
cons: General partners are personally liable for debts and losses, including actions of other partners
Taxes: Files federal tax return but does not incur taxes- FLOW-THROUGH ENTITY
Professional Corporation
Owned by stockholders who must all be licensed
Pro:Liability for malpractice is limited to the professional who committed the act
Con: Specific regulations can be cumbersome
Taxes: File federal but does not incur taxes
FLOW-THROUGH ENTITY
Subchapter S Corporation
Small business corporation (no more than 100 shareholders)
Allocates income and losses directly to shareholders in proportion to their holdings
Pro: Members personal assets are not at risk.Taxed at lower rates
Cons: Inhibited corporation growth
Taxes:Files federal tax return but does not incur taxes
FLOW -THROUGH ENTITY
Subchapter C corporation
Business structure consists of employees that exists as a legal entity apart from its members. Three types of members:Stockholders (elect directors)
Directors (elect Officers)
Officers (manage day to day, fiduciary duty to
Stockholders)
Pro:Members personal assets are not at risk. Taxed at lower rate than individuals
Cons: Initial cost, paperwork, formal requirements, double taxation. requires a lawyer and accountant
Taxes: files seperate corporate tax twice: Corporation are taxed on profits. Shareholders are taxed on dividends
Limited Liability Corporation
Partners are members
Pro:Same as Limited Partnership with flexible taxation, Taxation can be treated as a sole propertiorship, partnership or corporation
Com:Complex formation process, must form an LLC
Taxes:Files federal tax return but does not incur taxes. Flow Through Entity
Limited Liability Partnership
All partners considered self employed. llp certificate is filed with secretary of state and pays fee. files annual reports.
pros: Personal assets are protected from business claims.
cons:complex formation process
taxes:files federal tax return but does not incur taxes. files annual profit loss reports. flow through enity.
Joint Venture
Temporary alignment of 2 or more persons to complete a specific project. Memorandum of Understanding is often used to formalize agreement: 2 partners become a third company. formed after project has been awarded
Pro: Good for complex projects when firms have complementary experiences
Cons:Each partner or firm is liable for the actions of the other; they can be sued individually or collectively. Difficult to allocated responsibility and liability
Taxes:Pays no tax and earns no income or profit; each partner or firm taxation proceeds as separate entities
Flow Through Entity
Income and losses pass to partners and taxed at an individual rate.
How to choose a legal structure?
Number of partners, employees, office, state licensing board requirement, liability, best tax option
What are 3 legal structure categories?
Sole Proprietorship,Partnership,Corporation
What are 4 types of corporations?
s-corp(business corp)
c-corp(business corp)
LLC (professional corp)
LLP (professional corp)
Advantages of MBE,WBE,DBE,SBE, EBD registration?
