choice of entity

What Business Entity Should I Use?

William A. PriceAttorney at LawGrowthlaw.com1-800-630-4780

Illinois Entity Types

For-Profit C Corporation S Corporation LLC LP RLLP Partnership

Nonprofit Nonprofit Corporation Religious Corporation Unincorporated

Association

Today's Focus: For Profit Entities

C Corporation S Corporation LLC LP Partnership

From Startup To IPO

Startup: Sole Proprietor LGOP (Little Group Of Parachutists/People):

Partnership Or Boss/Employees Or Fellow Students Or Brothers Or Mom & Pop

Initial Organization: Pass-Through Entity at Lowest Filing Fee, Local

Outside Investors, Private: Still Pass-through Lots of Owners: Franchises, Investors:

Probably Public (Though P/E Prefer Private)

Sole Proprietorship(Not A Business Entity)

Income Tax: IndividualFiling Fee: None

Personal Property Replacement Tax: NoneLiability for Business Expenses And Loss

Causation: All Proprietor AssetsAgency Authority: Proprietor

Management Authority: Proprietor

Mom & Pop Business

She Owns The Assets Keeps the Books May or May Not

Work In The Business

Inherits Everything

He Does or Runs The

Business Gets the customers Does what he's

told!

Mom & Pop

Share income and other tax liabilities/single level tax cheaper for joint filers

Separate ownership/liabilities or tenancy by the entireties to separate household from business risks

May share liabilities, if she's in business/all family assets in business

Marital property laws and divorce court, if disputes among owners

Assumed Business Name

Required if any except names of individuals used as business name

County Clerk Filings & Fees Newspaper published notices ($$$!) Annual renewal New filing/publication with every new

owner/location

General Partnership

The default business entity No filing fees to create Pass-through tax liability 1.5% Personal Property Replacement Tax General agency of partners Management by agreement

S Corporation

Requires state filing fees ($150) (Expedited $100 if online filing, more if walk-in service)

Franchise tax 0.0015 of stated capital (minimum $25)

Pass-through income tax treatment Personal property replacement tax 1.5% Agency authority in President Management by single class of

Shareholders/elect Board of Directors

C Corporation

Requires state filing fees ($150) (Expedited $100 if online filing, more if walk-in service)

Franchise tax 0.0015 of stated capital (minimum $25)

Entity level tax on retained earnings, individual on distributions

Personal property replacement tax 2.5% Agency authority in President Management by one or more classes of

Shareholders/elect Board of Directors

Limited Liability Company(My Baby!...)

Filing fee $500 Annual report $250

(Corp. $75) No franchise tax Pass-through tax Agency in Manager or

Members Management by

Members/Manager Class(es)

Your Entity Is RegisteredAre You Battle Ready?

Now That I've Got It, How Do I Use This Thing?

Capital Contributions Trademark and Business Name Income Accumulation Contracts With Suppliers and Customers Hold Intellectual Property

Capital Contributions

1. Proprietor Assets: House, Bank Account, Stocks, Physical Assets, IP

2. Friends and Family: IIT $250k, U of C $850k, here?

3. Outside investors (?angels? ?suppliers?

?customers?)

1. Private equity (VC, p/e funds for M&A)

2. Public Investments

What's In A Name?

Entity Name State Trademark Federal Trademark Domain Name(s) International Trademarks Policing The Mark: Lawyer Letters, Courts Policing The Mark: Takedown Notices, ICANN

Income Accumulation

C corporations can have excess accumulations tax

S corp/passthroughs might want to buy saleable assets that appreciate

EBITDA multiples are your sale value

Contracts With Suppliers and Customers

Suppliers Learn the ways of

the UCC Price vs Quality Noncircumvent

agreements Get extended pay

terms

Customers Under-promise,

overperform Recover your costs Airborne or Fedex? Get paid upfront,

early, every time

Intellectual Property “Work For Hire” is for employees: Own Your IP Define your deliverables Retain rights to your “Expedebits” Build Proprietary Products And Services Think About Business/Product Positioning Register Your Trademarks, Copyrights, and

Patents

Questions?

Choice of Entity? Startup Paperwork? Capital Formation? Name and Image? Contracts? Buy, Sell, Recap?

Thanks For Coming!