Speaker 1: Hi, everyone. I'm Michelle Harden here from Harden Law PA, and this week we're going to be exploring the wonderful world of business entities, hopefully without putting you to sleep. Today, we will review the three most popular entities, the sole proprietor, the limited liability company, and the corporation. We'll also be reviewing three less popular entities, the general partnership, the limited partnership, and the limited liability partnership. Choosing a business entity is going to take some introspection on your part. So you're going to need to take a close look at the needs of your business and compare that to the qualities of each entity described in this video. Here are some questions that you should ask yourself. First, how many business owners will there be? Second, will filing paperwork be a burden for you? Third, how much do you want to protect yourself and your assets from personal liability? Fourth, how much money are you willing to pay to form your business? Fifth, do you plan on getting investors? Keep your answers to these questions in mind while we review each business entity. The sole proprietor. Every time I think of the sole proprietor, I think of Glenn from The Walking Dead. Now stay with me here. When Glenn first appeared on The Walking Dead, he was traveling alone, he was traveling light, and he didn't really have any weapons to protect himself. This is exactly like the sole proprietor in the business entity world. The sole proprietor can only have one owner, all alone for better or worse. The sole proprietor does not get weighed down by any paperwork because the sole proprietor is not required to file any documents with their secretary of state, though you may want to consider registering your business name. And finally, the disadvantage is that the sole proprietor has no protection from personal liability, which means that your personal assets are at risk. This extends into your marital assets if you're married. Granted, this might not be too big of a concern for you if you have good insurance. If you're not sure why insurance would be valuable to your business, or you're just not sure what policies would be good for your business, that's okay, because next week we're going to be going over which policies you should consider investing in. The general partnership. The general partnership is very similar to a sole proprietor, the only difference being that a general partnership, like any partnership, requires more than one business owner. Generally here, the partners have equal liability and equity in the business. Just like a sole proprietor, no paperwork needs to be filed in order to form a partnership. All owners are personally liable for their business, and income gets taxed on a personal level. The limited partnership. The LP is the Snorlax or Mr. Mime of the business entity world. That's to say, it's relatively rare. This business entity consists of at least one general partner, who usually handles the day-to-day management, and one limited partner, who's typically an investor. The limited partners can only be liable up to the extent that they're invested in the business. However, general partners can be personally liable for the entire business. In order to form an LP, you're going to need to file a Certificate of Limited Partnership with your Secretary of State. The limited liability partnership. In a limited liability partnership, all partners are considered limited partners, and no general partner needs to be named. Like a limited partnership, an LLP requires that a Certificate of Limited Partnership be filed with your Secretary of State. For this entity, you need to pay special attention to the rules of your filing state. Some states only allow certain types of businesses to form LLPs. The limited liability company. With the LLC, we start to see an increase in price and paperwork. In order to form an LLC, you will need to file an Articles of Organization with your Secretary of State, and draft an operating agreement. This will take a little bit of effort on your part. But the good news is, once you're done drafting these documents, that's it. You won't be required to file any more paperwork. The LLC gets taxed on the personal income level, unlike the other entities we've discussed this far. The owners of an LLC are generally personally protected from liability. However, if you're a single owner of an LLC, you need to be especially careful you still treat your company like it's separate from you. This means no commingling of funds, following your operating agreement, and making sure there's enough capital in your company to pay off any debts. The corporation. The corporation is truly a unique entity compared to the ones that we've talked about this far. The primary reason being that a corporation is treated like its own person under the law. So the bad news is, that in order to give birth to this whole new person, you need to file quite a bit of paperwork, and there's a nice chunk of money that you're going to have to invest in this. Specifically, in order to form a corporation, you will need to file the Articles of Incorporation with your Secretary of State, draft an operating agreement, and consider drafting a shareholders agreement. Additionally, every year you're going to have to file meeting minutes with your Secretary of State. Another downside to forming a corporation is double taxation. Since that corporation is treated like a separate person under the law, that other person gets its own taxes. At this point, you might be thinking, this really seems like a lot of work. Why would anyone want to form a corporation? Well, there are some serious advantages to forming a corporation. First, you know those taxes that you were worried about? As a corporation, you can get some big tax breaks. Also, as a corporation, you are significantly less likely to get audited. Another benefit is that a corporation can have unlimited shareholders. Finally, since the corporation is considered its own person, your corporation can get its own credit line. And more importantly, generally speaking, you will be insulated from personal liability. Thank you guys for exploring the wonderful worlds of business entities with me today. I know, this video was a lot to digest. So if you still have questions and concerns that you'd like ICANN Lawyer to address in one of their videos, be sure to leave it in the comments below. Or visit ICANN Lawyer's latest blog, where we've created a chart that lists the advantages and disadvantages of each business entity reviewed today. If you enjoyed today's video, make sure you like it. And if you want to see some really great legal education content, visit www.icannlawyer.com or subscribe to our channel.