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The Pros & Cons of Sole Proprietorships, LLCs and Corporations

Categories: Business Formation

Thinking about starting your own business?  One of the first things you will need to consider is what type of business entity is best for your new endeavor.  There are pros and cons to each and it is a good idea to consult with an experienced business lawyer before you make your decision:

Sole Proprietorship – nearly 75% of all American businesses are run as a sole proprietorship. Here are a few of  the pros and cons:

Pros:  They are easy to start,  the owner keeps all the profits, the business income is taxed as personal income, and the business can be dissolved easily.

Cons:  The owner is liable for all business liabilities and so their personal assets are vulnerable to creditors, it can be difficult to raise investment capital, and the business does not survive the owner.

Limited Liability Companies (LLCs) – the owners become “members” of this legal entity, which can offer the taxation benefits of a sole proprietorship with the limited liability protection of a corporation.

Pros:  The owners are protected from personal liability for business liabilities, the business income is taxed as personal income, and there is great flexibility of ownership and governance.

Cons:  LLCs are not recognized in every state (although they are in Minnesota), and the owners not obligated to consult with other owners for certain business transactions.

Corporation – a corporation is an entity that is entirely separate from its ownership, with its own legal rights.

Pros:  The owners are protected from personal liability for business debts and legal claims, shares of stock can be sold to raise capital, it is easy to transfer ownership,  the entity can outlive the original owners, and c-corporations qualify for the most fringe benefits for the owners.

Cons:  The owners must pay taxes twice – on the corporation’s income and the income earned personally from the corporation, and there are strict governance rules that must be followed.

To learn more, check out our Business Set Up page and download our Guide to Corporations, LLCs and Partnerships.

If you’re a small or mid-size business owner, or you would like to be one, call us at (612) 206-3701 or fill out our contact form today to schedule a business consultation session.

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

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When it comes to business, ignorance isn't bliss; ignorance is risk.

There's a handful of legal topics that business owners should be familiar with, at least on a rudimentary level, to reduce the risk of having something horrible come out of left field.

This book is a legal guide to help you put the most common business legal issues on your radar, with enough information for you to be on the alert for when you may need to get some professional advice.

The intention in arming you with this information is so that you can proceed in business confidently and with fewer legal quagmires.

Do you have a cabin?

The first generation that buys a cabin enjoys it to the fullest and it’s a magical place where happy memories are made and families go for some much needed respite. Unfortunately, without thoughtful planning, the chances of the cabin staying a place of happiness and tranquility into successive generations is very, very slim.

If you haven’t done the planning in advance and made it legally binding, the family members (and their ex-spouses and new spouses) will have to work every detail out for themselves. If they can’t, what is likely to happen is a lawsuit called an action for partition that forces everyone to sell their interest. This lawsuit is expensive, and the costs of litigation will come out of the proceeds of the sale of the cabin, so to add insult to injury to those who wanted to keep the cabin but couldn’t afford to buy the others out, they are footing part of the legal bills in the lawsuit against them. Ouch!

It’s no wonder that family members stop speaking for years after the cabin conflict is “resolved.” You can’t make family relationships perfect, but you can take away much of the fuel for the family conflict fire. That’s what cabin planning does, and it has the nice side effect of giving you peace of mind now.

That’s why Kimberly wrote The Minnesota Cabin Planning Guide and Workbook, and you can get a free electronic copy of her book on our cabin planning website, or you can find it in many county libraries in Minnesota, or you can get it on amazon.com.

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