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Choosing the Right Legal Form of Business: The Complete Guide to Becoming a Sole Proprietor, Partnership, LLC, or Corporation

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According the United States Small Business Administration’s most recently released date, there are more than 9 million small businesses in the United States and almost 250,000 new ones started every year. Of those new businesses, half will fail in the first 12 months and part of that failure is due to the lack of information about how to start and develop that business. Without the right legal form of business, you may end up paying too much in taxes, failing to comply with certain laws, or miss out on certain ...

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Choosing the Right Legal Form of Business: The Complete Guide to Becoming a Sole Proprietor, Partnership, LLC, or Corporation

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According the United States Small Business Administration’s most recently released date, there are more than 9 million small businesses in the United States and almost 250,000 new ones started every year. Of those new businesses, half will fail in the first 12 months and part of that failure is due to the lack of information about how to start and develop that business. Without the right legal form of business, you may end up paying too much in taxes, failing to comply with certain laws, or miss out on certain breaks that you deserve. This book provides you with a complete guide, discussing all four major forms of business, which one is right for you, and how your decision may affect you in the future.

The first thing you will read about is the list of non-legal issues you need to deal with before you start the business creation process. In addition, you will learn which form of business is ideal for your particular situation with a short overview of each type, a comparison of what each offers, and how the legal implications of each might apply to you. You will learn specifically how to choose between an LLC and a corporation in instances where it might not be immediately clear which is best for you. You will also learn which special business structures are best suited to your needs if you do not fit into any of the four primary categories.

The process of structuring a partnership is outlined, along with how to create a written agreement and how to change a partnership after the business has been created. You will also learn how to create a corporation, including the structure you will use, how to establish financing, the compensation you will provide yourself, whether you need a lawyer, the 13 step process of starting and filing your corporation, and what you need to do immediately afterwards. The number of members needed to create an LLC is provided as well, along with how to structure management and determine financing and compensation. 

Hours of careful interviews were conducted with successful small business owners and legal experts to help create a comprehensive collection of materials that will guide you through the processes above, as well as how to handle transition of ownership and the extended process of naming your business – including the legal implications of this process, what you need to know about trademarks and service marks, how to protect your own trademarks, and where to do name searches. The licensing and permit processes, as well as the tax structures for each business type, are included for federal, state, and local laws, while additional information is provided on how to build your home-based business as opposed to one in a physical location. If you are looking to create a new business and do not know which format is best for your needs, this book will walk you through each step of the selection process, making sure your new business meets all applicable laws and regulations.

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Product Details

  • ISBN-13: 9781601383013
  • Publisher: Atlantic Publishing Group Inc.
  • Publication date: 3/15/2010
  • Pages: 288
  • Sales rank: 885,832
  • Product dimensions: 5.90 (w) x 8.90 (h) x 0.60 (d)

Table of Contents

Foreword 11

Introduction 15

Chapter 1 Before Starting Your Business 21

Location 21

Entrepreneurial Skills 22

Time Management 24

Choosing a Business 26

Your business name 27

Financial considerations 30

Working with professionals 31

Business Plan 33

Marketing Plan 35

Sales 36

Advertising 37

Chapter 2 Overview of Business Structures 41

Sole Proprietorships 41

Partnerships 42

Limited Liability Companies (LLCs) 42

Corporations 43

Other Legal Entities 43

Limited partnership 44

Registered limited liability partnership (RLLP) 44

Comparison Chart 45

Chapter 3 Sole Proprietorships 49

Tax Considerations 50

Legal Implications 51

Operating a Sole Proprietorship 52

Advantages and disadvantages 52

Chapter 4 Partnerships 57

Getting Started 59

Step 1 Options for where to organize a partnership 60

Step 2 Choosing your partnership's name 61

Step 3 Using an attorney 63

Step 4 Assess ownership and make distributions 65

Step 5 Establish the management structure and select managers 68

Step 6 Write the partnership agreement 69

Step 7 Get an employer identification number 70

Tax Considerations 71

Legal Implications 73

Advantages and Disadvantages 74

Limited Partnerships 76

Registered Limited Liability Partnerships (RLLPs) 79

Chapter 5 LLCs 87

Getting Started 90

Step 1 Choose where to organize 90

Step 2 Decide on the name for your LLC 92

Step 3 Registering your agent 92

Step 4 Decide to organize yourself or use an attorney 94

Step 5 The LLC ownership 96

Step 6 Draft the articles of organization 97

Step 7 Assemble your LLC kit and seal (optional) 98

Step 8 Determine the management structure and select managers 100

Step 9 Creating your operating agreement 102

Step 10 Obtain and employer identification number 105

Tax Considerations 105

Operating an LLC 109

Meetings 111

The membership ledger and transfer of shares 114

Requirements for annual reporting 115

Amending articles of organization and operating agreement 115

Advantages and disadvantages 116

Foreign LLCs 118

Businesses That Can Take Advantage of LLCs 118

Businesses That May Not Take Advantage of an LLC Entity 121

Chapter 6 Corporations 123

General Overview 123

Corporation management 125

S Corporation 126

Effects on finances and taxes of an S corporation tax election 129

S corporation election 133

Capital for a Corporation 134

Public offerings 135

13 Steps to Incorporation 136

Step 1 Decide where to incorporate 137

Step 2 Select your corporate name 140

Step 3 Choose the type of corporation 142

Step 4 Select the registered agent 143

Step 5 Decide to do it yourself or hire an attorney 144

Step 6 Select the stock structure 146

Step 7 Write and file the articles of incorporation 149

Step 8 Create your corporate kit and seal 151

Step 9 Name your corporation's directors 152

Step 10 Write you corporation's bylaws 154

Step 11 Call a directors' organizational meeting 155

Step 12 Obtain an employer identification number 156

Step 13 Maintain your corporation 157

Tax Considerations 157

Operating a Corporation 161

Annual meetings 164

Advantages and disadvantages 171

Chapter 7 Changing your Business Structure 175

Determining the Right Time for a Change 175

Changing your Tax Structure 176

Changing a Partnership to an LLC 179

Converting a Partnership to a Corporation 184

From a general partnership to a corporation 188

From a limited partnership to a corporation 190

Converting a Sole Proprietorship or Partnership to an LLC 191

Converting a Sole Proprietorship to a Partnership 192

Legal procedures 193

Tax consequences of conversion 194

Procedures for a tax filing 195

Changing a Sole Proprietorship to an LLC 196

Legal procedures 196

Income tax consequences of conversion 198

Tax-filing procedures 199

Self-employment taxes 199

Converting a Sole Proprietorship to a Corporation 200

Legal procedures 201

Effects of income tax conversion 203

Tax-filing procedures 204

Converting an LLC to a Corporation 205

Legal procedures 206

Effects on income tax of conversion 208

Tax-filing procedures 209

Changing an LLC to a Partnership 209

Legal procedures 210

Effects on income taxes 211

Changing an LLC to a Sole Proprietorship 212

Effects on income tax 213

Chapter 8 Other Considerations 219

Operating a Home-based Business 219

Doing Business in Other States 221

Qualifying 225

Post-qualification duties 228

Failing to qualify a business 230

Lawsuits in Other States 233

Fighting Personal Jurisdiction 245

Chapter 9 Exit Plans 253

Why you Need a Plan 253

Dissolving and Liquidating a Corporation 255

Effects on income tax of dissolution 255

Sale of assets 256

Selling stock 257

A corporation-to-corporation sale 258

Types of Reorganizations 259

Reorganization procedures 259

Effects on income tax of corporate reorganizations 261

Dissolving a Partnership 262

Dissolution of an LLC 263

Conclusion 267

Appendix: State Web Sites and SBA Offices 269

Small Business Administration (SBA) Offices 272

Bibliography 279

Author Biography 281

Index 283

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Customer Reviews

Average Rating 4.5
( 8 )
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Sort by: Showing all of 9 Customer Reviews
  • Posted May 1, 2010

    Easy to understand with TONS of info!

    Being an independent designer, (and although this book had a plethora of tips), the third chapter was by and far the most important part of this book for me: sole proprietorship of your own company. This part did re-affirm what I already knew and experienced thus far and shed some helpful insight on what to prepare for in the future. This book threads the needle of helping business people of all types from independents like myself, to larger businesses with much more on their plates such as managing stock and the legal ramifications of expanding your enterprise and other important matters. It's very simple to follow, and contains only the most useful information. No filler here!

    I could understand if the book *might* seem too general as within 290 pages it covers a one-man venture to corporations, and everything in between. (Including partnerships & LLC's) However, when it covers YOUR intended form of business, it zeroes in like a missile! No matter what your business style might be, everyone essentially has to take care of critical items such as taxes, laying out your services, making a business plan, and keeping well within the laws of your state. As someone who works from home as an independent, I certainly learned a few things, as I believe there is enough data to help even corporate-owning big-wigs!

    1 out of 1 people found this review helpful.

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  • Posted August 11, 2012

    Choosing the Right Legal Form of business: the Complete Guide to

    Choosing the Right Legal Form of business: the Complete Guide to Becoming a Sole Proprietor, Partnership, LLC, or Corporation was timely and extremely helpful. Each section went into detail about a specific legal form, describing the advantages and disadvantages of each, as well as the steps necessary to secure the best legal form for one’s respective business.
    The information on tax considerations and legal implications will help the aspiring business owner to wisely choose the legal form based on type of business, number of partners, and the state in which the business is operating.
    I liked the fact that the author included a section on possible business structure change; this will come in handy for business owners who realize growth and need to change their legal structure accordingly.
    I thought this book was well researched and would highly recommend it.

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  • Anonymous

    Posted July 31, 2012

    Starting Out Right

    Choosing the Right Legal Form of Business by P/K. Fontana, 2010, 288 pages, Atlantic Publishing Group, Inc., $24.95

    A journey of a thousand miles is said to begin with a single step. In the path to establishing a business in tough times that first step can make all of the difference between success and failure. Before opening a business the would be entrepreneur must first carefully analyze their situation and the best method to achieve their goal. The choices made at the very beginning of an enterprise can have huge tax and civil liability consequences and determine the end game should the business fail.
    P.K. Fontana’s book guides readers through a careful examination of the various forms of business, sole proprietorship, partnership, limited liability company (LLC) or corporation. Each has its advantages and disadvantages which are outlined and examined in the right amount of detail. The often complicated legal aspects of business organization are well written for laypeople without over simplification. The book takes readers step by step through the various processes and requirements of setting up a business with or without the assistance of a lawyer. Even if a reader were to decide to employ a lawyer in the process the information in the book would still be of great value in starting out right. The book also covers how to change course if needed and if the worse happens how to best end the business with the least amount of pain.. Fontana’s book is a good business investment.

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  • Posted February 5, 2011

    Important guide

    As any small business owner knows we must make a decision for our company whether being a sole proprietor, being in partnership, or registering as an LLC or corporation is the best for us. It's easy on one hand because you are either a sole proprietor or you have a partner, however, deciding what the best route for registration of LLC or corporation is another story.
    Aside from consulting your accountant it is important to be well versed on the information yourself in order to make a better decision. We may trust our accountant but there is no need of being ignorant. This book gives concise informative content to give you a better understanding of the benefits of each option. Tax considerations can be overwhelming and the thought of changing the structure of the business can be challenging.
    However, after perusing this book I feel more comfortable in having a better understanding of each structure. Although all of this information can be found through a search on the Internet I feel that this book is a worthwhile investment because it saves a lot of time and effort by having all the information at hand. I highly recommend; it's great resource and guide.

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  • Posted June 14, 2010

    An informative book that will get you where you want!

    Starting your own business can be one of the biggest decisions you could ever make. Some people who have worked in small businesses have begun their own business. They may have been given help through contacts of the business owner(s) or by other means. However, there are those who have always dreamed of owning their own business, yet they do not even know where to begin. The process can be long, somewhat tedious, and you could always bring yourself into debt which can lead to a failing business. This is where "Choosing The Right And Legal Form Of Business" may be able to help.
    The information in the book is laid out in an easy to follow, step-by-step format. The book is easy to read making even some of the most difficult topics, such as changing your tax structure, easier to comprehend. The chapters of the book are split in the way that would seem most logical, from the most basic and common to the most complex and corporate. An example of this would be the types of business entities. They are divided into chapters and begins with sole proprietorships and ends with corporations. Each chapter is then divided into subcategories of the topic, again beginning with the basics and ending with the most complex. This is really good for those who will be using the book after reading it for future reference, since the organized layout can make looking up some information easier.
    Something else readers will appreciate is the way the author provides examples after many of the things that are discussed. For example, the chapter on corporations provides the reader with information of the different corporation types, as well as the different types of situations that may occur and how one might go about dealing with them. Every once in a while, the author will give web addresses that may be useful when, for example, checking to see if your trademark name is already registered and in use with the U.S. Patent and Trademark Office. The end of the book contains an appendix with web sites and addresses of states and SBA offices for future reference. With the many resources the book provides, it is easy to make a recommendation of this book to anyone, both already in a business of their own or just beginning. Everything is laid out in a way that is organized, and the information is easy to grasp making both reading and creating your own business a much more enjoyable experience.

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  • Posted May 4, 2010

    How To Choose the Right Legal Form of Business

    Are you planning to start your own business or need help to make your business grow? Then, you should definitely read Choosing the Right Legal Form of Business: The Complete Guide to Becoming A Sole Proprietor, Partnership, LLC, or Corporation. This excellent book written by PK Fontana will provide you with many valuable resources to guide you along the way to a successful business operation.

    In very precise terms, the author lays out in 9 chapters important and relevant information regarding legal structures in business, such as taxes, liability, paperwork and much more that can work to your best advantage in your business. While the author does not rule out hiring a lawyer, she states that it is not necessary to have one to start your business. She suggests that if you do your homework and learn as much as possible about the legal and formal elements of various types of business entities, you can cut your costs and time spent at an attorney's office, to a great extent.

    The author urges you to be informed about sole proprietorships and corporations. It is also important to choose the right legal form of business to meet your needs, and to plan and prepare carefully. In pointing out that you should be clear on your decision of a location at an early stage, she hints that home based businesses are the trend these days, and that there are many advantages here, including low overheads.

    In Chapter 1 there is an interesting quiz where you can answer questions about yourself before considering starting a business. You can them review your assessment objectively to aid you in your decision. Throughout the book there are case studies as an added bonus to this very informative book. The case studies provide added incentive and complement the author's advice. Chapter 4 gives valuable advice on partnerships. In succeeding chapters you will learn all about LLCs including ownership operations, management structure and foreign LLCs.There is valuable advice on changing a Partnership to an LLC, converting a Partnership to a Corporation and vice versa.

    The final chapter most appropriately gives advice on a Business Exit Plan which is necessary for any business. The book is written in a friendly and familiar style. The author's style is also persuasive. Instructions are easily understood, there is no complexity of language. Written with expert knowledge and tact, Choosing the Right Legal Form of Business: The Complete Guide to Becoming A Sole Proprietor, Partnership, LLC, or Corporation is definitely a book you would want to read if you are considering starting your own business. PK Fontana is a master at there trade and writes with purpose and persuasion. On a scale of 1-5, I rate this book a 5.

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  • Anonymous

    Posted April 28, 2010

    Great info!

    This is a comprehensive guide to the differences between business structures for someone who is beginning their own company. Starting with the business plan all the way through the possibility of dissolving a business, the reader will find all the tips they need to make it a success.
    Whether a sole proprietorship, a partnership, an LLC, or a corporation this guide will provide all the information needed from start to finish. There are step by step guides to everything from the business plan, choosing a name, legal and tax issues and pros and cons of the different structures. Also included are the implications of operating business in another state and changing the business structure from one type to another.
    I would give this publication 4 out 5 stars. The information is well written, easy to understand and gave the reader all the necessary steps to get a business started, including bringing up possibilities that may have been overlooked.

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  • Posted April 22, 2010

    Choosing the Right Legal Form of Business




    ***** = Five Stars

    Are you thinking about fulfilling your lifelong dream by going into business? Are you trying to figure out what the best set-up would be for your new venture? Does all of the information "out there" seem to be overwhelming? Before you seek out any professional advice, it would be a good idea to review your options by reading, Choosing the Right Legal Form of Business: The Complete Guide to Becoming a Sole Proprietor, Partnership, LLC, or Corporation by PK Fontana. It can indeed help you figure it all out.
    The book is strong in explaining the major business set-ups that are available to you. Just what are the differences, advantages, and disadvantages to setting up your business as a sole proprietorship, partnership, corporation, or another legal entity? The book highlights much of what you need to know to begin to make that important decision.
    Some interesting information includes the following (1) a focus on alternative business and marketing plans (2) a discussion of EIN numbers (3) case studies of real situations (4) helpful comparison charts (5) general tips (6) direction on how to convert from one business model to another (7) common versus preferred stock (8) a chart of tax rates and (9) attention to dissolution and liquidity. Also important to know is the fact that a lawyer will cost you $100 to $350 per hour.
    In today's precarious economic times, it's nice to know that there are some worthwhile financial and business books out there who offer solid advice in an easy-to-understand manner

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  • Posted April 16, 2010

    I Also Recommend:

    Choosing the Right Legal Form of Business: The Complete Guide to Becoming a Sole Proprietor, Partnership, LLC, or Corporation By: PK Fontana Atlantic Publishing Group, Inc.

    Review by: Aleksandra Kisilenko

    Many Americans want to start small businesses, but unable to do that because of lack of information. The book "Choosing the Right Legal Form of Business: The Complete Guide to Becoming a Sole Proprietor, Partnership, LLC, or Corporation" will help you to learn and gather all necessary laws and regulations for that process.
    It is a great book for explaining all the basics in starting and developing a business.

    This book deserves a five out of five star rating because of tons interesting features. One part that I was interested in was the structure for starting a partnership. I liked the bulletin points of what to think about in a business. I particularly enjoyed the encouragement to think of how to deal with different problems that might show up while running a small business. I also like the comparison of ideas for different business solutions. It is very important this book contains real examples and ideas from successful small business owners and legal experts.

    I would recommend this book to anyone who wants to start a small business and does not want it to fail, like a half of the small businesses in United States. I am sure that after reading this book, anyone trying to start a small business will be successful and prosperous.

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