Entity Legal Liability Issues
Unlimited Liability—lawsuits can attack the entity as well
as the owners’ personal assets
Schedule C and Schedule F proprietorships
General partnerships
The Middle Road—Limited Partnerships (LPs)
Limited partners are not allowed to participate in management
decision-making process, and cannot be compelled to make
any additional payments to partnership or creditors
LPs therefore have no liability beyond their investments in
the partnership
General partners make all management decisions and bear
unlimited liability for partnership losses.
Entity Legal Liability Issues--Continued
Limited Liability—The Best Possible Situation
Protected personally from lawsuits so long as professional
does not commit malfeasance themselves
Negligence or Fraud
Therefore need malpractice insurance
Limited Liability Entities:
C Corporation
S Corporation
LLP (limited liability partnership-still liable for general debts)
LLC (limited liability company-no liability beyond initial
investments)
Other Entity Choice Issues
C Corporation is best for fringe benefits, executive
compensation and capital formation
Issue stock to the public
Worst for double tax for dividends and liquidations
S Corporation is the best for small conduit entities
wishing to avoid the SE tax
LLC is probably the most flexible entity that
provides limited liability protection
Can have a single person LLC instead of a sole
proprietorship
But still may have to personally guarantee the debt!