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Please note We believe accurate, plain-English legal information should help you solve many of your own legal problems But this text is not a substitute for personalized advice from a knowledgeable lawyer If you want the help of a trained professional—and we’ll always point out situations in which we think that’s a good idea— consult an attorney licensed to practice in your state 3rd edition LLC or Corporation? How to Choose the Right Form for Your Business by Anthony Mancuso Third Edition november 2008 Editors RICHARD STIM lisa guerin Cover Design susan putney Production margaret livingston Proofreading robert wells Index bayside indexing Printing consolidated printers, inc Mancuso, Anthony LLC or corporation? : how to choose the right form for your business / by Anthony Mancuso 3rd ed p cm Includes index ISBN-13: 978-1-4133-0905-8 (pbk.) ISBN-10: 1-4133-0905-4 (pbk.) Private companies United States Popular works I Title KF1380.M364 2008 346.73'0668 dc22 2008023429 Copyright © 2005, 2006, and 2008 by Anthony Mancuso All Rights Reserved Printed in the U.S.A No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without prior written permission Reproduction prohibitions not apply to the forms contained in this product when reproduced for personal use For information on bulk purchases or corporate premium sales, please contact the Special Sales Department For academic sales or textbook adoptions, ask for Academic Sales Call 800-955-4775 or write to Nolo at 950 Parker Street, Berkeley, CA 94710 Acknowledgments Thanks to Rich Stim and Lisa Guerin, my editors As always, thanks to the hard-working Nolo staff for helping make this book a reality Table of Contents Your Legal Companion Part Entity Basics Business Why Your Choice of Entity Matters Sole Proprietorships General Partnerships 12 Limited Liability Companies (LLCs) 17 Corporations 21 … And the Runners-Up: Limited Partnerships, S Corporations, and RLLPs 29 Liability Concerns 45 Personal How Your Choice of Business Entity Affects Personal Liability 47 Using Insurance to Limit Liability 53 and Running Your Business 59 Forming Forming and Running a Sole Proprietorship 60 Forming and Running a Partnership 64 Forming and Running a Limited Liability Company 67 Forming and Running a Corporation 74 Resources for Forming an LLC or Corporation 78 Issues: Taxes, Profits, Losses, and Investments 83 Money Taxes 84 Paying Out Profits 96 Start-Up Losses 102 Institutional and Venture Capital 103 Planning for a Public Offering 105 Business Out of State 109 Doing Doing Business Out of State 111 Qualifying to Do Business 115 Paying and Collecting Taxes in Other States 127 Lawsuits in Other States 133 Internet Issues 148 Part a Sole Proprietorship to Another Entity 161 Converting Converting a Sole Proprietorship to a Partnership 162 Converting a Sole Proprietorship to an LLC 170 Converting a Sole Proprietorship to a Corporation 176 a Partnership to Another Entity 187 Converting Converting a Partnership to a Sole Proprietorship 188 Converting a Partnership to an LLC 192 Converting a Partnership to a Corporation 205 an LLC to Another Entity 217 Converting Converting an LLC to a Corporation 218 Converting an LLC to a Sole Proprietorship 227 Converting an LLC to a Partnership 234 ... consult an attorney licensed to practice in your state 3rd edition LLC or Corporation? How to Choose the Right Form for Your Business by Anthony Mancuso Third Edition november 2008 Editors RICHARD... not just picking a business form; you’re plotting a business strategy The more information you have, the better equipped you will be to plot the right course 8 | LLC or corporation? Now that... not be residents of the state where they form their LLC (or even the United States, for that matter), and other business entities, such as a corporation or another LLC, can be LLC owners Limited