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CONTACT OUR LAWYERS TODAY BOSTON 617.938.3928 LOS ANGELES 310.209.8236 TOLL FREE 866.677.NDVR(6387) |
BOSTON, MASSACHUSETTS | LOS ANGELES, CALIFORNIA | GARDEN CITY, NEW YORK*
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BOSTON GARDEN Opened in 1928, the Boston Garden was home to the Boston Celtics, 16 time world champions, and the Boston Bruins, 5 time winners of the Stanley Cup. The facility closed in 1995 to be replaced by the Fleet Center (now TDBank North Garden). The Boston Celtics won the NBA World Championship in 1957, 1959, 1960, 1961, 1962, 1963, 1964, 1965, 1966, 1968, 1969, 1974, 1976, 1981, 1984 and 1986.
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STARTING A BUSINESS: CHOICE OF ENTITY CONSIDERATIONS. ENDEAVORLEGAL provides entrepreneurs and small business owners the legal and business advisory services new and experienced entrepreneurs need to form a business entity appropriate to their particular needs. We advise clients with regard to selecting the appropriate type of entity for the venture prior to the formation of a new business. A corporation may be appropriate for one business while a limited liability company may be the right entity for another. Our attorneys work with entrepreneurs on a case by case basis in choice of entity considerations. An entrepreneur must consider many issues when determining how to organize a new business venture. What type of business will be conducted? Who will participate in the ownership and operation of the business? What type of tax burden will the venture carry? What level of organizational complexity will be necessary to accomplish the owners' objectives? These are just a few of the questions that must be answered prior to selecting the proper organizational form for the new business venture. The information on this page sets forth a number of the issues that should be considered in making business planning decisions. RELATED MATERIALS: Incorporating in Massachusetts; Organizing a Limited Liability Company in Massachusetts; and Choice of Entity: Taxation Considerations. "CORPORATION OR LIMITED LIABILITY COMPANY: WHICH IS BEST FOR MY BUSINESS?" FORMATION OF THE BUSINESS ENTITY. C Corporation. Incorporating documents must be filed with the Secretary of State and a minute book must be prepared including by-laws and shareholder and board of director resolutions. The corporation must also obtain an EIN number from the Internal Revenue Service (IRS). If the corporation is to conduct business in a state other than the state of incorporation it must be qualified to do so; this is accomplished by filing a document with the Secretary of State of the alternate state. S Corporation. In addition to the organizational actions that must be taken by a C Corporation, in order to create an S corporation, the shareholders of the corporation must make an election with the IRS to be taxed under Subchapter S of the Internal Revenue Code. Limited Liability Company. Organizational documents must be filed with the Secretary of State and a LLC operating agreement must be prepared. In addition, the LLC must obtain an EIN number from the IRS. If the LLC is to conduct business in a state other than the state of organization it must be qualified to do so; this is accomplished by filing a document with the Secretary of State of the alternate state. MULTIPLE CLASSES OF OWNERSHIP INTERESTS. C Corporation. Advantage: Numerous classes of stock may be created to provide different rights to different types of owners (i.e. investors vs. owner-operators). Disadvantage: Corporate stock terms can be very rigid. Their mechanics cannot easily be modified to create stock giving its holders economic rights that track corporate earnings or appreciation associated with designated company assets. S Corporation. Disadvantage: The IRS permits S corporations to authorize and issue only one class of capital stock. In addition, there are limitations on the number and type of shareholders a S corporation may have. Limited Liability Company. Advantage: LLC allocation and distribution rules are very flexible, and LLC operating agreements can be drafted to include special types of ownership interests that track earnings or appreciation associated with designated company assets. Disadvantage: An LLC can not issue incentive stock options. GOVERNANCE. C Corporation. Advantage: State law governing corporations is very detailed and provides a road map as to how company affairs must be conducted and transactions approved. Disadvantage: If statutorily mandated procedures are not followed, shareholders may lose their limited liability protections. S Corporation. Disadvantage: In addition to the requirements of state law, the IRS imposes certain rules for the continued maintenance of the corporation's election to be taxed under Subchapter S of the Internal Revenue Code. Limited Liability Company. Advantage: State law governing the LLC provides flexibility to owners in determining how company affairs will be conducted. LLC operating agreements can be drafted to limit the amount of records that must be maintained and what actions must be taken prior to consummating LLC transactions. FEDERAL TAXATION. Click Here to view "Choice of Entity: Federal Tax Considerations." LIMITED LIABILITY AND OWNER MANAGEMENT. C Corporation. Advantage: All holders of the stock of a corporation have limited liability protections. Disadvantage: If state mandated corporate governance rules are not followed the "corporate veil" may be pierced and shareholders will lose limited liability protections leaving their personal assets subject to seizure for the debts and obligations of the corporation. S Corporation. Advantage: All holders of the stock of a corporation have limited liability protections. Disadvantage: If state mandated corporate governance rules are not followed the "corporate veil" may be pierced and shareholders will lose limited liability protections leaving their personal assets subject to seizure for the debts and obligations of the corporation. Limited Liability Company. Advantage: All holders of membership interests in an LLC have limited liability protections. In addition, state mandated rules for LLC governance are flexible, providing the owners of the LLC with the ability to determine their own governance structure by entering into an LLC operating agreement. IMPACT ON INVESTORS. C Corporation. Advantage: Venture funds and angel investors are very familiar with the corporate form. C corporations can issue stock with a hierarchy of rights permitting investors to have rights preferential to those of the founders of the business venture. Disadvantage: C corporation's profits are taxed at the entity level. In additions, distributions to shareholders are taxed at the individual level resulting in a two-tiered taxation regime that investors may wish to avoid. S Corporation. Advantage: Investors may want to avoid the two-tiered tax regime associated with holding shares of a C corporation. Disadvantage: Investors may not be interested in the "flow-through" taxation associated with being a shareholder of an "S corporation." Non-US investors often must avoid investments that would cause them to be treated as "engaged in a trade or business within the United States." Each member of a flow-through entity is treated as engaged in any trade or business in which such entity is engaged. The IRS permits a S corporation to issue only one class of capital stock. Investors often mandate that their investment in a venture is evidenced by stock with rights superior to those of the founders. Limited Liability Company. Advantage: Investors may want to avoid the two-tiered tax regime associated with holding shares of a C corporation. In addition, investors may find the ease of creating various classes of ownership interests beneficial to their business and investing objectives. Disadvantage: Investors may not be interested in the "flow-through" taxation associated with being a member of an LLC. Non-US investors often must avoid investments that would cause them to be treated as "engaged in a trade or business within the United States." Each member of a flow-through entity is treated as engaged in any trade or business in which such entity is engaged. INITIAL PUBLIC OFFERING. There is no significant benefit to selecting one entity over another when it comes to considering an initial public offering as an exit strategy. If the company were organized as an LLC, it would be "rolled-up" into a corporation on a tax free basis prior to a public offering, either by having the members of the LLC sell their LLC interests to a new C corporation or by having the LLC transfer its assets to a new C corporation. If the company maintained an election to be taxed under Subchapter S of the Code, it would no longer be qualified to do so. "CORPORATION OR LIMITED LIABILITY COMPANY: WHICH IS BEST FOR MY BUSINESS?" |
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CLICK HERE TO RETURN TO THE ENDEAVORLEGAL, ATTORNEYS AT LAW: GARDEN CITY | LOS ANGELES | BOSTON BUSINESS LAWYER MAIN PAGE © 2007. ENDEAVORLEGAL, ATTORNEYS AT LAW. ALL RIGHTS RESERVED. LEGAL DISCLAIMER & TERMS OF SERVICE *ENDEAVORLEGAL'S PRESENCE IN GARDEN CITY, NY IS COURTESY OF THE LAW OFFICE OF JASON R. CORRADO |
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