Our Business Entity Formation Lawyers Can Help You Choose the Right Kind of Business to Meet Your Goals

Owners generally consider the following factors when selecting the right entity for their businesses: ease of formation, taxation, liability, management and control, transferability of ownership and continuity. Murphy Desmond’s business lawyers can help you choose the right type of business to meet your goals. We have successfully helped hundreds of businesses get off the ground, and are available to help with all your business needs.

• Sole Proprietorships. A sole proprietorship is an individual doing business in his or her personal capacity. It is a simple and flexible business form, but it offers no protection for the individual’s personal assets. This significant personal liability risk causes business owners to consider other ownership forms. No special steps need to be taken to operate as a sole proprietorship. The business ends upon the death of the owner.
• General Partnerships. A partnership is an agreement between two or more people to share expenses, profits and losses of a business enterprise. A general partnership is a flexible business form, but, similar to a sole proprietorship, offers no protection for the partners’ personal assets. Further, each partner may be liable for the actions of the other partners. No special steps have to be taken to be treated as a general partnership..The partnership ends upon a partner’s death or withdrawal unless the remaining partners elect to continue the business.
• Joint Ventures. A joint venture is an unincorporated business established by two or more persons or entities, usually for a short period of time and for a specific purpose. The joint venture relationship is generally documented in an agreement between the parties. Joint ventures are governed by the law of partnerships.
• Limited Partnerships. This type of partnership is comprised of the following types of partners:
  • (i) general partners who manage the business and are personally liable for the partnership debts;  
  • (ii) limited partners who contribute capital and share in profits but take no part in running the business and incur no liability with respect to partnership obligations beyond their contribution.  In Wisconsin, a Certificate of Limited Partnership must be filed with the Wisconsin Department of Financial Institutions to organize a limited partnership.

• Limited Liability Partnerships. Limited liability partnerships are entities that provide their owners with limited liability and benefits of pass-through taxation for state and federal income tax purposes. Liability protections vary by state. In Wisconsin, each partner retains personal liability for his or her own torts and the wrongdoing of any person acting under the partner’s actual supervision. However, partners may participate in the management and control of the business without losing the statutory liability shield. To take advantage of the liability protection, the entity must file a registration statement with the Wisconsin Department of Financial Institutions. 
• Limited Liability Companies. A limited liability company (“LLC”) is a flexible entity for many different types of businesses. Members (owners) of a LLC are not liable for the debts of the business beyond their investment in the company. LLCs may elect to be taxed as a corporation by filing an election with the IRS. If no election is made, the entity will be taxed as a partnership. Single member LLCs are considered a “disregarded entity” for tax purposes. This means that the entity need not file separate tax returns, but rather, report its tax obligations on the single member’s Schedule C. An LLC is formed by filing Articles of Organization with the Wisconsin Department of Financial Institutions. It is also recommended that members draft an Operating Agreement to govern the entity’s affairs. 
• Corporations. A corporation is a formal entity that protects it shareholders from the liability of business debts beyond their investment in the corporation. However, corporations must follow strict formalities set forth under the statutes. Corporations are managed by a Board of Directors who set up corporate policy and officers that implement the corporate policy. Officers and directors are not personally liable for corporate obligations, but may be liable to shareholders and third parties for certain wrongdoing. Shareholders have limited rights to participate in management. A corporation is organized by filing Articles of Incorporation with the Wisconsin Department of Financial Institutions. 
• C Corporations and S Corporations. Traditionally, C corporations are subject to double tax: the corporation is taxed on the income it receives and then the shareholders are taxed again on their corporate dividends. Under Subchapter S of the Internal Revenue Service, an S corporation’s income is taxed only once at the individual shareholder level. The requirements for a corporation to elect Subchapter S treatment are:
  • (i) it must be a domestic corporation;
  • (ii) it must have not more than 100 shareholders;
  • (iii) each shareholder must be an individual, an estate or certain types of trusts;
  • (iv) no shareholder may be a nonresident alien;
  • (v) it may have only one class of stock, although classes of common stock differing only in voting rights are permitted. 
• Cooperatives. Cooperatives are entities owned and controlled by members who agree to cooperate for their mutual social, economic or cultural benefit. In Wisconsin, a cooperative may choose to either incorporate under Wis. Stat. Ch. 185 or to establish itself as an unincorporated cooperate association under Wis. Stat. Ch. 193. It must file either Articles of Incorporation or Articles of Organization that describe the type and scope of business with the Wisconsin Department of Financial Institutions. The cooperative must also have Bylaws that describe how the cooperative is governed.
• Non-Profit Entities. Non-profit entities may take a variety of forms. The most common form is a charitable organization that will operates for a charitable purpose under 501(c)(3). To be tax-exempt under Section 501(c)(3), an organization must be organized and operated exclusively for an exempt purpose set forth under 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, the entity may not attempt to influence legislation as a substantial part of its activities or participate in any campaign activity for or against political candidates. To qualify under 501(c)(3), the entity must file a Form 1023 Application for Recognition of Exemption. 

Contact a business lawyer at Murphy Desmond S.C. if you are considering starting a business so that you choose the best business entity for your needs.