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Choice of Entity TO: Attendees at Small Business Education Night FROM: Melissa C. Guldbrandsen, Alton Law Offices, PLLC RE: Choice of Entity DATE: May 4, 2006      1. Sole Proprietorship No statutory requirements for formation (you should reserve your trade name with Secretary of State) Taxed as a pass through entity Personal liability      2. Partnership Single level of taxation; pass-through Personal liability Relatively simple to manage      3. Limited Liability Company Single level of taxation; pass-through Limited liability Wide range of ownership interests are permitted Administered through the operating agreement State filings required Separate legal entity      4. Corporation Formalities required (annual meetings, election of officers) Limited liability Easier access to capital Double layer of taxation (for “C” but not “S”) State filings required Separate legal entity Comments — A Sole Proprietorship or General Partnership makes sense when little capital is required, no liability protection is required, limited assets are at risk, and no sale of the business is anticipated. A Corporation is a good choice when limited liability is desirable, pass-through income is not desired, large growth is anticipated, access to capital is desired, and broad ownership and future sale of the business is contemplated. A Limited Liability Company combines the best features of corporations and partnerships. An LLC exists as a separate entity, and members can not be held personally liable for debts (unless they have signed a personal guaranty). There is unlimited flexibility with the structure of ownership and the distribution of profits. LLC’s must be formed through the Secretary of State’s office, but no formal minutes, annual meetings or elections are required. Income and losses flow through to the members. Return to Home Page