Business Entity - Comparison of Choices
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A few closely related topics & pages From Bob Parrish CPA PC:
Client
Letter - What this idea is about From Bob Parrish CPA PC
| Starting a business anew Be sure you get the clue The entity type to choose Is the type that fits you |
Description / Scope / Skill Level Pre-requisite Knowledge
Topic - Objective - Purpose Why This Is Important: Usefulness General Benefits 7 Objectives:
Text
Time Estimate
Materials - Equipment-Tools - Library Resources
Who This Applies to:
WhoWhen to Perform:
WhenSpecial Circumstances: Warnings & Special Circumstances
TOP
Engagement Status Letter From Bob Parrish
CPA PCYou have not engaged Bob Parrish CPA PC, Bob Parrish CPA, pro1040, Consulting on line, any related parties, or the ISP to perform any services for you or offer you advice. This entire site is for educational or informational purposes only. You are not to use the forms, concepts, strategies, or knowledge without assistance from a professional. The author, the corporation, the ISP, Bob Parrish CPA, Bob Parrish CPA, P.C. or other parties related to those or this site do not guarantee or warrantee in any manner the suitability, usefulness, accuracy, timeliness, or results of any portions of this site, nor the links contained in this site which link to other areas. At times, information is taken from other sources and is believed to be accurate, but no verification or confirmation is performed. Furthermore, if any federal or state law invalidates a portion of this disclaimer, the other portions still apply. In addition, any allegations or actions are restricted to arbitration only and must be arbitrated by the Better Business Bureau in Sarasota Florida. Reading of these pages constitutes complete acceptance and agreement with all disclaimer provisions on all pages of this site. ....... Thursday, February 22, 2007 11:43 AM
Learning
Objectives (What You Asked) From Bob Parrish CPA PCObjective one
What You Will Need From
Bob Parrish CPA PC
Plain English Analysis What it does, Why it works - The Answer, Alternatives From
Bob Parrish CPA PCWhat it does:
Why it works:
Alternatives
Cost v. Benefit Analysis
Other
Reserved
COMPARISON OF ENTITY STRUCTURES pt.1
Entity Type
Liability for Debts of Entity
Participation in Management
Transferability of Interests
Term
Limited Partnership
General Partner liable. Limited partners protected unless participate
in management.
Participation by limited partners generally restricted to preserve
limited liability.
Restrictions imposed by state law, by securities laws, and generally
by the partnership agreement; generally, partner may assign right to
receive distributions/allocations, but assignee becomes partner only if
all partners consent.
Partnership Agreement specifies terms.
Limited Liability Company
All members protected.
No restrictions.
Restrictions imposed by state laws, securities laws, and LLC
Regulations, if any; generally, member may assign right to receive
distributions/allocations, but assignee becomes member only if all
members consent.
Varies, often not to exceed 30 years; can reconstitute.
S Corporation
All shareholder protected.
No restrictions.
Restrictions are imposed by securities laws, and by a shareholder's
agreement, if any.
Perpetual.
C Corporation
All shareholders protected.
No restrictions.
Restrictions are imposed by securities laws, and by a shareholder's
agreement, if any. Also, shareholders usually agree not to make
transfers that would terminate S election.
Perpetual.
Statutory Trust
All beneficiaries.
Trustee manages and beneficiary may be trustee.
Restrictions are imposed by securities laws, and by a shareholder's
agreement, if any.
Perpetual.
COMPARISON OF ENTITY STRUCTURES pt.2
Entity Type
Will Entity be Dissolved Upon Death, Retirement, Resignation,
Expulsion, Bankruptcy or Dissolution of Participant?
Are Ownership Interests Securities?
Subject to Federal Income Tax at Entity Level?
Limited Partnership
Yes, if general partner is affected; but can be reconstituted by
remaining general partner or by agreement of all remaining partners.
Limited partners' interest s are securities.
No, if lacks two of four corporate characteristics: (i) limited
liability; (i) free transferability of interest; (iii) continuity of
life, and (iv) centralized management.
Limited Liability Company
Yes, unless Regulations provide otherwise or remaining members
unanimously consent to continue business.
Possibly not, if all members have management rights.
No, if lacks free transferability of interests and continuity of life.
Occasionally, a LLC may lack centralized management.
S Corporation
No
Shares are securities.
No, however, any shareholder may cause loss of tax status.
C Corporation
No.
Shares are securities.
Yes.
Statutory Trust
No.
Yes.
Depends on classification.
COMPARISON OF ENTITY STRUCTURES pt.3
Entity Type
Qualifications
Number of Owners
Form of Permissible Interest
Will Contribution of Appreciated Property be Taxable?
Limited Partnership
A limited partnership generally needs an individual general partner or
a corporate general partner with substantial assets.
At least 2; no upper limits.
In most states, cash, property, services rendered, promissory notes,
or obligation to transfer property.
No, regardless of control by partner, unless recharacterized as sale
or partner has net reduction in liabilities in excess of tax basis in
contributed property.
Limited Liability Company
No restrictions.
At least 2 to be considered a partnership for tax purposes; no upper
limits.
In most states, cash, property, services rendered, promissory notes,
or obligation to transfer property.
No, regardless of control by member.
S Corporation
Various eligibility requirements, including a restriction on the
number of shareholders and on the ownership of subsidiaries.
No lower limits; upper limit is 35.
Any tangible or intangible benefit to the corporation, including cash,
promissory notes, services rendered, contracts for future services, or
other securities of the corporation.
Yes, except if controls corporation (80% voting power) immediately
after transfer.
C Corporation
No restrictions.
No lower or upper limits.
Any tangible or intangible benefit to the corporation, including cash,
promissory notes, services rendered, contracts for future services, or
other securities of the corporation.
Yes, except if controls corporation (80% voting power) immediately
after transfer.
Statutory Trust
None.
No restrictions.
Any tangible or intangible benefit to the corporation, including cash,
promissory notes, services rendered, contracts for future services, or
other securities of the corporation.
Depends on classification.
COMPARISON OF ENTITY STRUCTURES pt.4
Entity Type
Managing Body
Officers
Rules for Management of Entity
Must Formalities be Observed to Preserved Limited Liability?
Limited Partnership
General partner. Limited partners may not participate in management.
No.
Limited Partnership Agreement.
No.
Limited Liability Company
Managers, unless Regulations reserve to members. All members can
participate in management.
Yes, if designated by managers.
Regulations.
Unclear.
S Corporation
Board of Directors.
Yes, if designated by managers.
Bylaws.
Yes, unless corporation adopts close corporation status.
C Corporation
Board of Directors.
Yes, must have at least president and secretary.
Bylaws.
Yes, unless corporation adopts close corporation status.
Statutory Trust
Trustee.
Yes.
Trust Agreement.
Yes./td>
COMPARISON OF ENTITY STRUCTURES pt.5
Entity Type
Types of Owners
Filing Required
Entity Name
Organization Costs
Limited Partnership
No restrictions.
Certificate of Limited Partnership.
Must contain "Limited Partnership", "Limited",
"L.P.", or "Ltd".
Varies.
Limited Liability Company
No restrictions.
Articles of Organization.
Usually must contain "Limited", "Ltd.",
"LC", or "LLC".
Varies.
S Corporation
Ownership is limited to U.S. residents and citizens and to certain
U.S. trusts (no corporations, nonresident aliens, partnerships, certain
trust, and pension plans).
Articles of Incorporation.
Must contain "Corporation", "Company",
"Incorporated", or abbreviation thereof.
Varies.
C Corporation
No restrictions.
Articles of Incorporation.
Must contain "Corporation", "Company",
"Incorporated", or abbreviation thereof.
Varies.
Statutory Trust
No restrictions.
Certifcates of Trust.
No requirement.
Varies.
COMPARISON OF ENTITY STRUCTURES pt.6
Entity Type
Ability to do Business in other States
Limited Liability of Participants Recognized in Other States
Levels of Income Tax
Limited Partnership
Yes.
Yes.
Partner level only.
Limited Liability Company
Unclear in those states that do not have an LLC statute.
Unclear in those states that do not have an LLC statute.
Member level only.
S Corporation
Yes.
Yes.
Generally, only shareholder level. However, former C corporations may
be subject to tax. In addition, some states will tax S corporations.
C Corporation
Yes.
Yes.
Corporate and shareholder level.
Statutory Trust
Yes.
Yes.
Beneficiary level.
COMPARISON OF ENTITY STRUCTURES pt.7
Entity Type
Formation
Special Allocation of Income and Loss Between Participants
Deductibility of Losses Attributable to Entity Debt
At-Risk Limitations
Limited Partnership
Nontaxable, unless disguised sale or the partner is relieved from
debt.
Yes.
General partners only may deduct partnership losses to extent of
basis, unless limited partnership assume liability.
Applicable.
Limited Liability Company
Nontaxable, unless disguised sale or the partner is relieved from
debt.
Yes.
Members may deduct the LLC's losses only to the extent of their tax
basis on their LLC interest which includes their allocable share of LLC
debt.
Applicable.
S Corporation
Taxable; however, if the transferrors meet the 80% control test of IRC,
Section 351, nontaxable except to the extent of debt relief.
No, all allocations are pro rata since only one class of stock is
permitted.
Shareholders may deduct the corporation's losses only to the extent of
their tax basis in their stock which does not include any portion of the
corporation's debt.
Applicable.
C Corporation
Taxable; however, if the transferrors meet the 80% control test of IRC,
Section 351, nontaxable except to the extent of debt relief.
Preferences in distribution can be given to certain classes/series of
stock.
Shareholders may not deduct any of the corporation's losses.
Applicable, if closely held.
COMPARISON OF ENTITY STRUCTURES pt.8
Entity Type
Passive Activity Limitations
Fiscal Year
Cash Distributions
Liquidations
Limited Partnership
Limited partner can be active under only 3 of 7 test (i.e.,
essentially, the limited partner must participate in the activity for
500 hours).
Generally Calendar.
Nontaxable to the extent of a partner's tax basis.
Nontaxable to the extent of a partners's tax basis.
Limited Liability Company
It is not clear whether members or managers can qualify under all 7 or
only 3 tests.
Generally Calendar.
Nontaxable to the extent of a member's tax basis.
Nontaxable to the extent of the member's tax basis.
S Corporation
All 7 test apply.
Generally Calendar.
Generally nontaxable to the extent of the shareholders' tax basis.
Generally nontaxable at corporate level and taxable at shareholder
level through flow-through of corporate tax items.
C Corporation
Not applicable.
No restrictions.
Taxable as dividends to the extent of the corporation's earnings and
profits and then nontaxable to the extent of the shareholder's tax
basis.
Taxable to both corporation and shareholders.
Technical Analysis & Citations What It does, Why
it works - From Bob Parrish CPA PC
Law (commentary and citation)
Regs (commentary and citation)
Cases (commentary and citation)
Reserved
Tax
Killers 
From Bob Parrish CPA PC
This is about Activity Based Taxplanning - maximizing deductions, minimizing cash outlay and maximizing the amount of cash retained and the net worth. Activity Based Taxplanning (ABT) is a methodology developed by Bob Parrish CPA, that assists people with the tax issues by focusing on the activity (or actions - events) that are being undertaken or contemplated (or have already taken place). The, research is compiled from the myriad of sources to help you complete the activity with the least tax cost, while maintaining compliance the tax laws, other laws and regulations and place yourself in a position to protect your objectives.
Tax is a subject that many view in order to cut costs. Taxes are a cost just as any other cost. It happens this cost is somewhat intangible and is defined by legislation without a tangible item to view and control. The money is spent and the control of the expenditure is more appropriately administered by someone trained in the law.
Cost
Killers 
From Bob Parrish CPA PC
This is about Activity Based Costing - methods to cut costs, management accounting, management information systems, decision support systems - in general about being a manager.
Preparing for your CPA, attorney, or preparing to start
your own What to gather - From Bob Parrish CPA PC
Entrance Interview
Exit Interview
From Banking Records
From Customer Records
From Signed Documents
From Your Other Business, or Financial Records
From Corporation or Organization Records (meetings, etc.)
What to do
Forms - checklists, time-line to do, etc. Assistance - What
To Do - From Bob Parrish CPA PCAssistance - What to do
Forms - Checklists - Etc.
Spreadsheets & Computations From Bob
Parrish CPA PC
Spreadsheet #1
Contracts, Trusts, etc. From Bob Parrish CPA PCAgreement #1
Reports
Required From Bob Parrish CPA PCReport #1
Checklists for Deployment From Bob Parrish CPA PCChecklist #1
Checklist for Monitoring From Bob Parrish CPA PCChecklist #1
Financial Accounting: Bookkeeping & Financials From
Bob Parrish CPA PCFinancial Statement Presentation
Notes to Financial Statements
How to Make Entries
What Kind of Records to Keep
Bookkeeping Methods - Cash, Accrual and Other
How the Business Entity Affects the Recording
Sole Proprietor
Corporation - C & S
Partnerships - General, Limited, Limited Liability Company, Registered Limited Liability Partnership or Company
Trusts
Tax Exempt
Compliance - what is required for protection, defense, etc.
From Bob Parrish CPA PCCompliance Checklist
Alerts
& Dangers - Risks, Asset Protection, IRS Defense From Bob
Parrish CPA PCAction Checklist
Alerts & Dangers - Risks
Asset Protection
Your Defense
