SOLE PROPRIETORSHIP LIMITED shareholder, each with different levels of responsibility, legal duty, and control. A sole proprietorship is a that is owned A is a partnership formed by are formed by filing articles of with and operated by one person. The owner is entitled two or more people with at least one general the state and have strict record keeping to all profits of the business, but is also personally partner and at least one limited partner. The requirements. A must comply with liable for all obligations. A sole proprietorship is general partner controls the of the federal laws and the laws of each state in which it considered the simplest form of business entity business and is usually liable for all obligations of conducts business. The manner in which business because few formalities are required. the partnership. The limited partner is usually only profits are taxed depends entirely on the structure an investor with . For tax purposes, of the corporation. limited act like general partnerships, A general partnership is formed when two or more where each partner pays personal income taxes on LIMITED LIABILITY people co-own a business for a profit. A written his share of the partnership profits. A limited A Limited Liability Company (LLC) is a separate legal partnership agreement is not required, but is a partnership must be registered with the state, but entity with one or more owners, called members. good idea. The partnership agreement governs the has no additional recordkeeping requirements. The liability of the owners is usually limited to their amount of control each partner will have and also investment. LLCs have few record-keeping how the partners will share profits or losses. CORPORATION requirements, but should have an operating Typically each partner is jointly and severally liable A corporation is a legal entity separate from its agreement and must file articles of for all obligations of the partnership. Each partner owners, the shareholders. A corporation typically with the state. LLCs offer tremendous is responsible for the income taxes on his share of consists of directors, officers, and at least one organizational flexibility and can be taxed like partnership profits. corporations or like partnerships.

MANAGEMENT/PROFITS LIABILITY TAXES ADMINISTRATION SOLE Sole proprietor has total control No separation of liability—all of All profits are taxed as income of Must obtain business license and PROPRIETORSHIP of and the proprietor’s personal and sole proprietor. register name. No receives all profits. business assets are at risk. administrative requirements. GENERAL Control and profits are shared Partners are liable for all Acts as pass-through entity. Each No formal administrative PARTNERSHIP between partners according to obligations of the partnership and partner pays tax on his share of requirements other than the partnership agreement. liabilities of other partners. profits. May also require self- obtaining local licenses and taxes. permits. LIMITED General and limited partners Limited partners: no liability for Acts as pass-through entity. Both must be PARTNERSHIP share in the control and profits of obligations of limited partnership. general and limited partners pay filed, but generally no record the partnership according to the General partners: same liability as tax on their share of profits. keeping or tax filing partnership agreement. partners in a general partnership. requirements. CORPORATION Shareholders: ownership rights, In general, neither directors, S-Corp (acts as pass-through Requires bylaws and filing of including election of directors. officers, nor shareholders are entity): All profits are taxed as articles of incorporation; typically Directors: govern general affairs personally liable for any of the income of each shareholder. has comprehensive record and appointment of officers. obligations of the Corporation. C-Corp: Business income is taxed keeping and tax filing Officers: manage day-to-day at corporate level; dividends are requirements. operations of the business. taxed as shareholders’ income. LIMITED Member profits and management Usually limited to the member’s Can be taxed like corporation or Only articles of organization must LIABILITY procedures are directed by the investment in the company. partnership. be filed, but should also have an COMPANY operating agreement. operating agreement.

BUSINESS INTELLECTUAL PROPERTY AND ENTITY CHECKLIST: TRANSACTIONAL LAW CLINIC ¨ Choose the proper business Ø Evaluating business entity for your situation. organizational needs ¨ Prepare formation documents and agreements. Ø Drafting and reviewing business ¨ Register with the state. Ø Preparing filings and forms for ¨ Apply for a Federal Trademark. local, state and federal agencies ¨ Obtain a Federal Employment Ø Identification Number. Drafting Partnership and Organizational Agreements ¨ Determine your liability for unemployment tax. Ø Helping you maximize the of value of your intellectual School Law ¨ Register with the Department property of Taxation. INTELLECTUAL PROPERTY AND ¨ Satisfy local licensing TRANSACTIONAL LAW CLINIC requirements. ¨ Contact the appropriate state agencies with oversight of your Choosing the . INTELLECTUAL PROPERTY AND Proper Business TRANSACTIONAL LAW CLINIC University of Richmond School of Law 28 Westhampton Way Entity University of Richmond, Virginia 23137 Phone: (804) 289-8921 E-mail: [email protected]