Definition:

A Limited Liability Company (LLC) is a business structure allowed by state statute. It is the most popular business entity used today. Each state may use different regulations, for example Minnesota has unique statutory requirements.

Documentation:

The Articles of Organization must be filed with the Secretary of State.
Employer Identification Number (EIN) must be obtained from the IRS.
An Operating Agreement is highly recommended to be created for internal purposes within the LLC.

Advantages:

Limited Liability. Members are protected from personal liability for business decisions or actions of the LLC. This means that if the LLC incurs debt or is sued, members’ personal assets are usually exempt. This is like the liability protections afforded to shareholders of a corporation. Keep in mind that limited liability means “limited” liability – members are not necessarily shielded from wrongful acts, including those of their employees.
Less Recordkeeping. An LLC’s operational ease is one of its greatest advantages. Compared to an S-Corporation, there is less registration paperwork and their start-up costs are lower.

Sharing of Profits. There are fewer restrictions on profit sharing within an LLC, as members distribute profits as they see fit. Members might contribute different proportions of capital and sweat equity. Consequently, it’s up to the members themselves to decide who has earned what percentage of the profits or losses.

Disadvantages:

Limited Life. In many states, when a member leaves an LLC, the business is dissolved and the members must fulfill all remaining legal and business obligations to close the business. The remaining members can decide if they want to start a new LLC or part ways. However, you can include provisions in your operating agreement to prolong the life of the LLC if a member decides to leave the business.
Self-Employment Taxes. Members of an LLC are considered self-employed and must pay the self-employment tax contributions towards Medicare and Social Security. The entire net income of the LLC is subject to this tax.—SBA

Conclusion:

Let BK Law Group help you create and maintain a strong and profitable LLC.

Definition:

A corporation (sometimes referred to as a C corporation) is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs.-SBA

Documentation:

The Articles of Incorporation must be filed with the Secretary of State.
Employer Identification Number (EIN) must be obtained from the IRS.
The Bylaws are highly recommended to be created for internal purposes within the Corporation.

Advantages:

Limited Liability. When it comes to taking responsibility for business debts and actions of a corporation, shareholders’ personal assets are protected. Shareholders can generally only be held accountable for their investment in stock of the company.

Ability to Generate Capital. Corporations have an advantage when it comes to raising capital for their business – the ability to raise funds through the sale of stock.

Corporate Tax Treatment. Corporations file taxes separately from their owners. Owners of a corporation only pay taxes on corporate profits paid to them in the form of salaries, bonuses, and dividends, while any additional profits are awarded a corporate tax rate, which is usually lower than a personal income tax rate.

Attractive to Potential Employees. Corporations are generally able to attract and hire high-quality and motivated employees because they offer competitive benefits and the potential for partial ownership through stock options.

Disadvantages:

Time and Money. Corporations are costly and time-consuming ventures to start and operate. Incorporating requires start-up, operating and tax costs that most other structures do not require.
Double Taxing. In some cases, corporations are taxed twice – first, when the company makes a profit, and again when dividends are paid to shareholders.

Additional Paperwork. Because corporations are highly regulated by federal, state, and in some cases local agencies, there are increased paperwork and record keeping burdens associated with this entity.

Conclusion:

Let BK Law Group help you create and maintain a strong and profitable Corporation.

Definition:

An S corporation (also referred to as an S corp) is a special type of corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S Corporation.—SBA

Documentation:

The Articles of Incorporation must be filed with the Secretary of State.
Employer Identification Number (EIN) must be obtained from the IRS.
The Bylaws are highly recommended to be created for internal purposes within the Corporation.

Advantages:

Tax Savings. One of the best features of the S corp is the tax savings for you and your business. While members of an LLC are subject to employment tax on the entire net income of the business, only the wages of the S corp shareholder who is an employee are subject to employment tax. The remaining income is paid to the owner as a “distribution,” which is taxed at a lower rate, if at all.

Business Expense Tax Credits. Some expenses that shareholder/employees incur can be written off as business expenses. Nevertheless, if such an employee owns 2% or more shares, then benefits like health and life insurance are deemed taxable income.
Independent Life. An S corp designation also allows a business to have an independent life, separate from its shareholders. If a shareholder leaves the company, or sells his or her shares, the S corp can continue doing business relatively undisturbed. Maintaining the business as a distinct corporate entity defines clear lines between the shareholders and the business that improve the protection of the shareholders.

Disadvantages:

Stricter Operational Processes. As a separate structure, S corps require scheduled director and shareholder meetings, minutes from those meetings, adoption and updates to by-laws, stock transfers and records maintenance.

Shareholder Compensation Requirements. A shareholder must receive reasonable compensation. The IRS takes notice of shareholder red flags like low salary/high distribution combinations, and may reclassify your distributions as wages. You could pay a higher employment tax because of an audit with these results.

Conclusion:

Let BK Law Group help you create and maintain a strong and profitable Corporation.

Definition:

A nonprofit is an organization whose purpose is not making a profit, but something else for example, furthering a cause or advocating for a particular point of view.

Documentation:

A ST16 (Application for Nonprofit Exempt Status—Sales Tax) must be filed with the MN Department of Revenue.
A Tax Identification Number must be obtained through the MN Department of Revenue.
A Charitable Organization Registration Statement with a copy of the Articles of Incorporation, IRS Determination Letter, and a most recent financial statement must be filed with the Attorney General.

Advantages:

Employee Commitment. Many employees who work for nonprofits have a personal interest in and commitment to the organization’s cause. There is an advantage to employing workers who believe in the nonprofit’s mission, values and philosophy. In addition, employees with a personal interest may have a better understanding of the structure and processes of a nonprofit organization.
Fulfilling Work. Nonprofits and their employees reap intrinsic rewards from the satisfaction of helping clients and community members who are not in a position to fend for themselves.

Disadvantages:

Limited Funding. Fund development and fund-raising can be a nonprofit organization’s greatest hurdle to overcome, especially during an economic downturn and when unemployment rates are high.

Social Pressure. Potential backlash and social fracas plague some nonprofit organizations whose missions are considered extreme, whether they are based on fundamentalist beliefs or progressive attitudes.

Conclusion:

Let BK Law Group help you create and maintain a strong and lasting Nonprofit.

Definition:

A sole proprietorship is the simplest and most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no distinction between the business and the owner.

Documentation:

No formal documentation is required for this business entity, unless you need certain licenses and permits for your industry.

Advantages:

Easy and inexpensive to form: A sole proprietorship is the simplest and least expensive business structure to establish.

Complete control. Because you are the sole owner of the business, you have complete control over all decisions.

Simplified tax preparation. Your business is not taxed separately, so it’s easy to fulfill the tax reporting requirements.

Disadvantages:

Unlimited personal liability. Because there is no legal separation between you and your business, you can be held personally liable for the debts and obligations of the business. This risk extends to any liabilities incurred because of employee actions.

Difficulty in raising funds. Sole proprietors often face challenges when trying to raise money. Because you can’t sell stock in the business, investors won’t often invest. Banks are also hesitant to lend to a sole proprietorship because of a perceived lack of credibility when it comes to repayment if the business fails.

Heavy burden. The flipside of complete control is the burden and pressure it can impose. You alone are ultimately responsible for the successes and failures of your business.

Conclusion:

Because of the significant and daunting disadvantages of a sole proprietorship please let BK Law Group help you minimize your liability and tax exposure, so you can go back to running your business with a clear and sound mind.

Definition:

A partnership is a single business where two or more people share ownership. General Partnerships assume that profits, liability and management duties are divided equally among partners. If you opt for an unequal distribution, the percentages assigned to each partner must be documented in the partnership agreement.

Documentation:

Must register your business with the State through the Secretary of States’ office.
Employer Identification Number (EIN) must be obtained from the IRS.
A Partnership Agreement is highly recommended to be created for internal purposes within the Partnership.

Advantages:

Easy and Inexpensive. Partnerships are generally an inexpensive and easily formed business structure. The majority of time spent starting a partnership often focuses on developing the partnership agreement.

Shared Financial Commitment. In a partnership, each partner is equally invested in the success of the business. Partnerships have the advantage of pooling resources to obtain capital. This could be beneficial in terms of securing credit, or by simply doubling your seed money.

Complementary Skills. A good partnership should reap the benefits of being able to utilize the strengths, resources and expertise of each partner.
Partnership Incentives for Employees. Partnerships have an employment advantage over other entities if they offer employees the opportunity to become a partner. Partnership incentives often attract highly motivated and qualified employees.

Disadvantages:

Joint and Individual Liability. Like sole proprietorships, partnerships retain full, shared liability among the owners. Partners are not only liable for their own actions, but also for the business debts and decisions made by other partners. In addition, the personal assets of all partners can be used to satisfy the partnership’s debt.

Disagreements Among Partners. With multiple partners, there are bound to be disagreements Partners should consult each other on all decisions, make compromises, and resolve disputes as amicably as possible.

Shared Profits. Because partnerships are jointly owned, each partner must share the successes and profits of their business with the other partners. An unequal contribution of time, effort, or resources can cause discord among partners.

Conclusion:

Let BK Law Group help you create and maintain a strong and profitable Corporation.

Definition:

A limited partnership (LP) is owned by two classes of partners: general and limited. General partners manage the enterprise and are personally liable for its debts. Limited partners contribute capital and share profits, but typically do not participate in management. Limited partners also incur no personal liability for partnership debts beyond their capital contributions. At least one partner must be a general partner with unlimited liability, and one must be a limited partner whose liability is limited to the amount of his or her investment. Limited partners enjoy liability protection much like a corporation’s shareholders or an LLC’s members.

Documentation:

Must register your business with the State through the Secretary of States’ office.
Employer Identification Number (EIN) must be obtained from the IRS.
A Partnership Agreement is highly recommended to be created for internal purposes within the Partnership.

Advantages:

Taxes. LPs enjoy pass-through taxation.
Limited liability. Limited partners are not held personally responsible for business debts and liabilities.

Control. General partner(s) have full control over all business decisions.
Flexibility. Partners have more flexibility in management structure with fewer formal requirements and annual paperwork

Disadvantages:

Personal Liability. The general partner(s) face unlimited liability.

Little Control. Limited partners are prohibited from participating in business management.

Conclusion:

Let BK Law Group help you create and maintain a strong and profitable Partnership.

Definition:

A limited liability partnership (LLP) is a hybrid, sharing attributes of partnerships and limited liability companies (LLCs). LLP partners participate in the management of the business, as in general partnerships, and the personal assets of the partners typically cannot be used to satisfy business debts and liabilities, as in an LLC. LLP partners may also enjoy personal liability protection from the acts of other partners (but each partner remains liable for his or her own actions).

Documentation:

Must register your business with the State through the Secretary of States’ office.
Employer Identification Number (EIN) must be obtained from the IRS.
A Partnership Agreement is highly recommended to be created for internal purposes within the Partnership.
A Statement of Qualification must be filed with the Minnesota Secretary of State.

Advantages:

Taxes. LLPs enjoy pass-through taxation.

Limited Liability. All partners are not held personally responsible for business debts and liabilities.

Flexibility. Partners have more flexibility in how they manage the company with fewer formal requirements and annual paperwork.

Professionals. The LLP form may be the only choice for a professional services business that wishes to have pass-through taxation in states that do not allow professional limited liability companies (PLLCs).

Disadvantages:

Personal Liability. Owners receive less liability coverage than with an LLC.
Insurance. Many states impose mandatory insurance requirements.

Outdated. LLPs have been eclipsed by PLLC statutes in some states.

Limited Availability. Most states limit LLP status to professionals.

Conclusion:

Let BK Law Group help you create and maintain a strong and profitable Partnership.