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michigan business owners.....

Old 08-16-2002, 07:59 PM
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Where to start...

We started a couple Corporations, both S corps registered in Michigan.

My FIRST advice is to talk to people you trust that have their own businesses of roughly the same nature you are looking to do. Ask questions! Most people can give you some pretty good "heads up" in areas you may not have thought about.

There are several different ways you can set up a business that works best for you. Personally I would talk to an accountant familiar in the type of business you desire to start. Find an attorney that is familiar with that line of work as well.

As your business grows you may consider finding a very good tax attorney as well. He can help in numerous ways from tax issues, to trusts, to retirement vehicles.

I am (trying) to attach a list of different types of business arrangements and how they differ. Note they may differ from State to State so I would recommend speaking with an attorney to discuss what yould be best for your situation. If you can't read this list PM me and I'll email it to you.

Sole Proprietorship

In General: This is the simplest form of business. A sole proprietorship is not a separate entity itself. Rather,
a sole proprietor directly owns the business and is directly responsible for its debts.

Unlimited Personal Liability for Loss: In a sole proprietorship, the owner is personally liable for the
company, thus placing his or her entire personal assets and wealth at risk. If an owner is married, that
owner puts the community property at risk as well.

Management and Control: The owner (sole proprietor) has total management and control over the company.
However, the price for total management and control is that the owner is at risk for personal liability incurred
through the acts of the owner's agents or employees.

No Formalities: With the exception of complying with any applicable licensing requirements, there are no
formalities required of a sole proprietorship. Note, however, where the business is conducted under a
name which does not show the owner's surname or implies the existence of additional owners, California,
for example, requires that the owner file a fictitious business name statement and publish notice.

Transferability: The owner can sell the business as he or she pleases.

Duration: The sole proprietorship remains in existence for as long as the owner is willing or able to stay in

General Partnership

In General: A form of business entity in which 2 or more co-owners engage in business for profit. For the
most part, the partners own the business assets together and are personally liable for business debts.

Sharing Profits: In the absence of a partnership agreement, profits are shared equally amongst the
partners. A partnership agreement, however, will usually provide for the manner in which profits and losses
are to be shared.

Unlimited Personal Liability for Losses: Each Partner is, jointly and severally, personally liable for debts and
taxes of the partnership. For example, if the partnership assets are insufficient to satisfy a creditor's claims,
the partners' personal assets are subject to attachment and liquidation to pay the business debts.

Liability for a Co-partner's debts: Each general partner is deemed the agent of the partnership. Therefore, if
that partner was apparently carrying on partnership business, all general partners can he held liable for his
dealings with third persons.

Liability for a co-partner's wrongdoing: Each partner may be held jointly and severally liable for a
co-partner's wrongdoing or tortious act (e.g. the misapplication of another person's money or property.

Duration: Technically, a partnership terminates upon the death, disability, or withdrawal of any one partner.
However, most partnership agreements provide for these types of events with the share of the departed
partner being purchased by the remaining partners in the partnership.

Management and Control: In the absence of a partnership agreement, each general partner has an equal
right to participate in the management and control of the business. Disagreements in the ordinary course of
partnership business are decided by a majority of the partners. Disagreements of extraordinary matters and
amendments to the partnership agreement require the consent of all partners

Transferability: Unless otherwise provided in the partnership agreement, no one can become a member of
the partnership without the consent of all partners. However, a partner may assign his share of the profits
and losses and right to receive distributions ("transferable interest"). Further a partner's judgement creditor
may obtain an order charging the partner's "transferable interest" to satisfy a judgment.
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Old 08-16-2002, 08:04 PM
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Joint Venture

In General: A Joint Venture is a General Partnership typically formed to undertake a particular business
transaction or project rather than one intended to continue indefinitely. Most often, joint ventures are used in
real estate matters where 2 or more persons undertake to develop a specific piece of real property.

Limited Partnership

Limited Partnerships in general: In a Limited Partnership, one or more 'general" partners manage the
business while "limited" partners contribute capital and share in the profits but take no part in running the
business. General partners remain personally liable for partnership debts while limited partners incur no
liability with respect to partnership obligations beyond their capital contributions. The purpose of this form of
business is to encourage investors to invest without risking more than the capital they have contributed.

Duration: Death, disability, or withdrawal of a general partner dissolves the partnership unless the
partnership agreement provides otherwise or all partners agree, in writing, to substitute a general partner.
Note, death or incompetence of a Limited Partner has no effect on the partnership

Formalities: The formalities of setting up and operating a limited partnership are very similar to that of
starting a small, for-profit corporation. The California Limited Partnership Act, for example, requires the filing
of a certificate with the Secretary of State, applies restrictions on the use and availability of partnership
names, contains statutory requirements with respect to the manner of calling and holding meetings, and
contains many corporation-like requirements.

Limited Liability Partnership (LLP)

LLP in general: California allows attorneys and accountants to operate their practices as a limited liability
partnership. This formation is a General Partnership that elects to be treated as an LLP by registering with
the Secretary of State. Many attorneys and accountants find the LLP as a very attractive alternative since it
shields the partners from vicarious liability, can operate more informally and flexibly than a corporation, and
is accorded full partnership tax treatment. Note, in California, with certain exceptions, the LLP is only
available to attorneys and accountants.

Registration: Registration in California, for example, is effected by filing a written statement with the
Secretary of State (along with a filing fee) setting forth the name and principal office address, name and
address of its agent for service of process in California, a brief statement of the partnership's business, and
a statement that the partnership is registering as a limited libaility partnership. An annual tax is thereafter
imposed on LLPs equivalent to the minimum franchise tax imposed on California corporations (i.e. $800).

Limited Liability Company

Advantages of forming an LLC

In general: An LLC is a hybrid between a partnership and a Corporation in that it combines the
"pass-through" treatment of a partnership with the limited liability accorded to corporate shareholders.

Two members required: Unlike a corporation which can have as few as one shareholder, most states
require that an LLC consist of two or more members (owners). Recently, however, more states are allowing
single-member LLCs. Please note, however, that the IRS may treat a single person LLC differently than an
LLC with more than one member.

Separate Legal Entity: Like limited partnerships and corporations, an LLC is recognized as a separate legal
entity from its "members."

Limited Liability: Ordinarily, only the LLC is responsible for the company's debts thus shielding the
members from individual liability. However, there are some exceptions where individual members may be
held liable:

Guarantor Liability: Where an LLC member has personally guaranteed the obligations of the LLC, he or she
will be liable. For example, where an LLC is relatively new and has no credit history, a prospective landlord
about to lease office space to the LLC will most likely require a personal guarantee from the LLC members
before executing such a lease.

Alter Ego Liability: Very similar to the judicial doctrine applied to corporations where a court may hold the
individual shareholders liable where the business entity is merely the "Alter Ego" of its shareholders, a
member of an LLC may also be held liable for the LLCs debts if the court imposes its "alter ego liability"

Please note, however, that although a corporation's failure to hold shareholder or director meetings may
subject the corporation to alter ego liability, this is not the case for LLCs in California. An LLC's failure to hold
meetings of members or managers is not usually considered grounds for imposing the alter ego doctrine
where the LLC's Articles of Organization or Operating Agreement do not expressly require such meetings.

Management and control: Management and control of an LLC is vested with its members unless the
articles of organization provide otherwise.

Voting Interest: Ordinarily, voting interest directly corresponds to interest in profits, unless the articles of
organization or operating agreement provide otherwise

Transferability: No one can become a member of an LLC (either by transfer of an existing membership or
the issuance of a new one) without the consent of members having a majority in interest (excluding the
person acquiring the membership interest) unless the articles of organization provide otherwise.

Duration: Although many states now allow an LLC to have a perpetual existence, LLC's traditionally were
required to specify the date on which the LLC's existence will terminate. In most cases, unless otherwise
provided in the articles of organization or a written operating agreement, an LLC is dissolved at the death,
withdrawal, resignation, expulsion, or bankruptcy of a member (unless within 90 days a majority in both the
profits and capital interests vote to continue the LLC).

Formalities: The existence of an LLC begins upon the filing of the Articles of Organization with the Secretary
of State. The articles must be on the form prescribed by the Secretary of State. Among the required
information on the form is the latest date at which the LLC is to dissolve and a statement as to whether the
LLC will be managed by one manager, more than one manager, or the members.

To validly complete the formation of the LLC, members must enter into an Operating Agreement. This
Operating Agreement may come into existence either before or after the filing of the Articles of Organization
and may be either oral or in writing.
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Old 08-16-2002, 08:06 PM
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The Corporation (C-Corporation)


The "C-Corporation" designation merely refers to a standard, general-for-profit, state-formed corporation. To
be formed, an Incorporator must file Articles of Incorporation and pay the requisite state fees and prepaid
taxes with the appropriate state agency (usually, the Secretary of State -- Corporations Division).

Separate Legal and Tax Life

A corporation which is properly formed and operated as a corporation assumes a separate legal and tax life
distinct from its shareholders. A corporation pays taxes at its own corporate income tax rates and files its
own corporate tax forms each year (IRS Form 1120).

Management and Control in Corporations

Normally, a corporation's management and control is vested in the board of directors who are elected by the
shareholders of the corporation. Directors generally make policy and major decisions regarding the
corporation but do not individually represent the corporation in dealing with third persons. Rather, dealings
with third persons are conducted through officers and employees of the corporation to whom authority is
delegated by the directors of the corporation.


Shareholders are the owners of a corporation.

Board of Directors

The Board of Directors is responsible for the Management and policy decisions of the corporation. There
are, however, a few instances when the shareholders are required to approve of the Actions of the Board of
Directors (e.g. amendment to the Articles of incorporation, sale of substantially all of the corporate assets,
the merger or dissolution of the corporation, etc...).

Corporate Officers

Corporate officers are elected by the Board of Directors and are responsible for conducting the day-to-day
operational activities of the corporation. Corporate officers usually consist of the following: (President,
Vice-President, Secretary, Treasurer).

Number of Persons Required

In most states, one or more persons may form and operate a corporation. Some states, however, require
that the number of persons required to manage a corporation be at least equal to the number of owners.
For example, if there are two shareholders, there must also be a minimum of two directors.

Fringe Benefits

Corporations may often offer their employees unique fringe benefits. For example, owner-employees may
often deduct health insurance premiums paid by the corporation from corporate income. In addition,
Corporate-defined benefit plans often afford better retirement options and benefits than those offered by
non-corporate plans.

Corporate Formalities

To retain the corporate existence and thus the benefits of limited liability and special tax treatment, those
who run the corporation must observe corporate formalities. Thus, even a one-person corporation must
wear different hats depending on the occasion. For example, one person may be responsible for being the
sole shareholder, Director, and Officer of the corporation; however, depending on the action taken, that
person must observe certain formalities: Annual meetings must be held, corporate minutes of the meetings
must be taken, Officers must be appointed, and shares must be issued to shareholders. Most importantly,
however, the corporation should issue stock to its shareholders and keep adequate capitalization on hand
to cover any "foreseeable" business debts.

Shareholder Liability for Corporate Debts

Where corporate formalities are not observed, shareholders may be held personally liable for corporate
debts. thus, if a thinly capitalized corporation is created, funds are commingled with employees and officers,
stock is never issued, meetings are never held, or other corporate formalities required by your state of
incorporation are not followed, a court or the IRS may "pierce the corporate veil" and hold the shareholders
personally liable for corporate debts.

Avoiding Double Taxation

Generally, the corporation is taxed for its own profits; then, any profits paid out in the form of dividends are
taxed again to the recipient as dividend income and the individual shareholder's tax rate. However, most
small corporations rarely pay dividends. Rather, owner-employees are paid salaries and fringe benefits that
are deductible to the corporation. The result is that only the employee-owners end up paying any income
taxes on this business income and double taxation rarely occurs.

S-Corporation Election

Another alternative is to elect the S-Corporation Status as discussed earlier. Please consult an accountant
or C.P.A. who knows and understands the intimate details of your business along with federal and local tax
rules so that you can make the best decision regarding which form of business entity (S-Corporation or
C-Corporation) will best suit your needs.

Duration of a Corporation

As a separate legal entity, a corporation is capable of continuing indefinitely. Its existence is not affected by
death or incapacity of its shareholders, officers , or directors or by transfer of its shares from one person to

Constitutional Protections for Corporations

Although a corporation is not a "citizen" under the privileges and immunities clause of the Fourteenth
Amendment to the U.S. Constitution, a corporation may exercise some of the constitutional protections
granted to natural persons:

Right to Due Process and Equal Protection: Corporations enjoy the right to equal protection and due
process of law under the Fourteenth and Fifth Amendments to the U.S. Constitution and under similar
provisions of the California Constitution.

Freedom of Speech: Absent some narrowly drawn restrictions serving compelling state interests,
corporations have the right to express themselves on matters of public importance whether or not those
issues "materially affect" corporate business.

Right to Counsel: While a corporation cannot be imprisoned, a criminal action can result in fines and other
penalties that could harm shareholders, officers, and other persons. Thus, a corporate criminal defendant
has a Sixth Amendment to a Right to Counsel. But note, because a corporation faces no risk of
incarceration, it has no right to appointed counsel if it cannot afford to retain private counsel

No Privilege Against Self-Incrimination: Corporations have no privilege against self-incrimination (e.g. to
prevent disclosure of incriminating corporate records).
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Old 08-16-2002, 08:07 PM
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"S Corporation"

What is an S Corporation

An S Corporation begins its existence as a general, for-profit corporation upon filing the Articles of
Incorporation at the state level. A general for-profit corporation (also known as a 'C corporation') is required
to pay income tax on taxable income generated by the corporation.

However, after the corporation has been formed, it may elect "S Corporation Status" by submitting IRS form
2553 to the Internal Revenue Service (in some cases a state filing is required as well). Once this filing is
complete, the corporation is taxed like a partnership or sole proprietorship rather than as a separate entity.
Thus, the income is "passed-through" to the shareholders for purposes of computing tax liability. Therefore,
a shareholder's individual tax returns will report the income or loss generated by an S corporation.

Qualifying for S Corporation Status

To qualify as an S corporation, a corporation must timely file IRS Form 2553 with the IRS. This election must
be made by March 15 if the corporation is a Calendar year taxpayer in order for the election to take effect for
the current tax year. However, a "New" corporation may make the filing at anytime during its tax year so long
as the filing is made no later than 75 days after the corporation has began conducting business as a
corporation, acquired assets, or has issued stock to shareholders (whichever is earlier).

To qualify for S corporation status, the corporation must be a U.S. corporation with only one class of stock. In
addition, the corporation cannot have more than 75 shareholders. Further, shareholders must be
individuals, estates or certain qualified trusts, who consent in writing to the S corporation election. No
shareholder can be non-resident alien.
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Old 08-16-2002, 08:19 PM
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wow .. Thanks for the info playn. Thats more words then I saw in my whole college career

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Old 08-16-2002, 08:20 PM
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cut and paste is a wonderful thing
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