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2 0 1 9 • WRAPS • 47 is a highly regulated proposition. Several departments of the government agencies around you have a keen and dedicated interest in your enterprise—mostly to extract monies from it. From simply applying for a business license, to triple-checking that the company pays the right amount of taxes on-time, it seems your administrative to-do list is never-ending. Choosing the right operating entity can be compared to taking a cross-country trip: you need to know in what direc- tion you are going, what route you will take, and where you hope to end up. Smart entrepreneurs—the quest for start-up capital notwithstanding—begin with a thoroughly written plan spelling out issues that the company will face in the next five to ten years. This business plan should strongly influence the proper legal structure as it will address ownership, risks, goals and tax implications. The best way to look at the available choices is to describe them from the simplest to the more sophisticated entities. In- terestingly, a given business could pass through each of them over the course of its corporate lifetime. In fact, if manage- ment fails to adapt and migrate to a more appropriate legal structure when such an evolution is called for, it could actually stunt the growth and success of the business. THE JOLLY OL' SOLE PROPRIETOR Sole proprietorships are formed every day throughout the United States. A person gets an idea for a venture, decides on a name, gets an occupational license or permit and—voila! — she's in business. The downside to a sole proprietorship is that you and the business are legally the same thing. If something goes awry, guess what—or, rather, who—becomes fair game? Not only will the business be put at risk, but your personal assets such as your home, cars and bank accounts can also be tapped. De- pending on the nature of the claim and/or the casual involve- ment that your spouse/life partner may have in the business, their assets may also be targeted. Fortunately, most states have adopted legislation that guards some of your possessions in an action against credi- tors, but to exercise that protection, you may have to declare bankruptcy. Sole proprietorships normally end upon death, disability, bankruptcy or retirement of the owner. The beauty of operating as a sole proprietor is the sim- plicity of administration, and the wide latitude you are given in making business decisions. You're not bogged down with the detailed recordkeeping requirements, filing fees and other administrative costs that are required of corporations. And all revenue that flows into the business is treated as though it is individual earnings and is taxed at your individual rate. You are able to take business deductions against not only your business income, but from any income, regardless of the source, because all your income and losses are lumped togeth- er. Expenses such as travel, meals, entertainment and automo- bile mileage all become deductible if they were incurred while conducting business. And even though your business may be small, you still should find yourself a good accountant and/or tax preparer in order that you may take full advantage of the tax credits from individual retirement accounts (IRAs), self-employed pension plans (SEPs), Keogh plans, or putting other members of your family, such as children, on your payroll. HOWDY, PARDNER! When a business has more than one owner but still is unin- corporated, its corporate structure is considered a partnership. Partnerships have been around ever since the first lawyers and accountants popped up. A partnership involves two or more people who agree to share in the profits or losses of a business. There are two types of partnerships: general and limited. The difference between a general partnership and a limited one is the degree of control and liability. In a limited partner- ship, at least one partner is named a general partner and the others are named limited partners. General partners basically run the business day-to-day. A primary advantage is that the partnership does not bear the tax burden of profits or the benefit of losses—profits or losses are "passed through" to partners to report on their in- dividual income tax returns. A primary disadvantage is liabil- ity—each partner is personally liable for the financial obliga- tions of the business. Actually, about eight percent of all U.S. companies are organized as partnerships. This type of entity works best for service-oriented businesses. Management of and profits from the business are shared between the partners in accordance with the terms of a part- nership agreement, which can be written or oral. You may want to craft your well-written partnership agreement by answering the following questions:

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