Set 5 TX Legal Forms and Structures

Question 1

4 types of legal entities

Answer 1

Sole proprietorship
Partnership
Corporation
Joint Venture

Question 2

3 types of corporations

Answer 2

Public
Private
CCPC

Question 3

Advantages of SP/partnerships

Answer 3

losses may be used against other income of individual partner or owner
reasonable salaries may be paid to partner or spouse/children
no need for full set of FS - income included as business income

Question 4

Advantages of corporations

Answer 4

reasonable salaries may be paid to owner, owner’s spose/children
potential for income splitting
potential for tax deferral if personal tax rates higher than corporate tax rates
estate or succession planning is possible
lifetime capital gains exemption may be possible

Question 5

Disadvantages of SP/partnerships

Answer 5

no tax deferral on profits
not separate legal entity - no tax planning
responsible for all losses personally
no lifetime capital gains exemption

Question 6

Disadvantages of corporations

Answer 6

losses at startup retained in corporation and cannot be used against other income
separate tax return required
higher admin costs, legal costs due to complexity