To succeed in business, to protect your assets and to limit your liabilities, you will want to select one of the good entities. Each good entities has its own advantages and disadvantages and has its own specific use. Each one of these good entities is utilized by the rich and the knowledgeable in their business and personal financial affairs.
1. Sole Proprietorship. Garrett Sutton says Sole Proprietorship is a Bad Entity, as this provides no asset protection for the owner. One lawsuit against your business, and your house, savings, and personal assets can all be lost.
2. General Partnership. Garrett Sutton says General Partner is a Bad Entity, as this provides no asset protection for the owner. The reason is exactly the same as the above.
3. Limited Partnership (LP). This is a Good Entity. A limited partnership is similar to a general partnership with the exception that it has two types of partners.
The first type is a general partner who is responsible for managing the partnership. A Corporation or an Limited Liability Company can be formed to serve as a general partner of a Limited Partnerships to limit the liability.
The second type is a limited partner; by definition, he or she is limited to the contribution of capital to the partnership and may not become actively involved in the business of the partnership.
4. Limited Liability Company(LLC). This is a Good Entity to use in certain situation as it provides the limited liability protection of a corporation and the flow-through taxation of a partnership.
There are two more features that make LLC unique:
- 1) Flexible management structure
2) Flexible allocation of profit and loss
5. S Corporation. This is a Good Entity to use in certain situation, but only limited to the US citizens. S corporation has eligibility requirements; a corporation organised must be in any U.S state, but not from outside the U.S. The shareholders, which is limited to 75 people, should all be U.S. Individuals.
6. C Corporation. This is a Good Entity. We have leant that one entity size does not fit all business scenarios. However, in terms of maximizing deductions and taking advantage of the tax laws for fringe and other benefits, nothing beats C corporation.
This book also discusses about how to use Nevada Corporation (USA) to take maximum advantages and the benefits of multiple corporation strategies. It also lays out step by step strategies to form four of the above good entities, how to raise money, deal with all of the employee issues and how to protect your entity names etc.
Many people do not aware that there are good entities and bad entities when they are forming companies. This is a great book to get insights on different entities and choose one or more of entities to maximize the benefits and take advantages of the various tax laws.