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Business Entity Selection Alan R. Singleton, Esq.

At a Glance singleton@singletonlawfirm.com

2001 South First Street, Suite 209 Champaign, IL 61820 217-352-3900


Limited Liability Single Member Limited
Sole Proprietorship General Partnership S Corporation C Corporation
Company Liability Company
Association of two or more co-
An individual carrying on a Limited liability for owners makes it
owners carrying on a business Combines limited liability
business for profit. Limited liability for shareholders Limited liability for shareholders a better choice than sole
Liability for profit. provided by a corporation with
even if they participate in even if they participate in proprietorship unless cost of
(Limited v. Personal) Partners have unlimited management. management.
pass through partnership tax
formation or maintenance is a
Unlimited personal liability for treatment.
personal liability for partnership controlling factor.
the owner.
debts.

Single level of income tax. Tax at both corporate and


Pass through tax treatment shareholder level - this double LLC files a partnership tax Disregarded entity from an income
(partnership files form 1065 but Pass through tax treatment tax can be avoided to some return (form 1065) with all tax perspective - all income and
Tax Implications All income and expenses all income and expenses pass under most circumstances but extent by payment of income and expenses being expenses are reported on the sole
reported on Schedule C of the through to individual partners not as complete as for the LLC. reasonable salaries to passed through to individual member's tax return and no income
owner's 1040. on Schedule K-1). shareholders in exchange for owners of the LLC on a K-1. tax return need be filed by the LLC.
services actually rendered.

Formation steps include filing


Relatively easy to start - articles of organization with the Formation process similar to
Formation similar to S corp
partnership agreement is Secretary of State, contributing multiple-member LLC except that
Relatively simple to start. except Sub S election not filed
typically entered into but is not Formation steps include filing an appropriate amount of the operating agreement will likely
with IRS.
legally required. Articles of Incorporation with capital, and adopting an be less complex.
the Secretary of State, filing operating agreement.
Complexity of Formation Sub S election with the IRS,
Can be managed by the
and Management If business conducted other adoption of Bylaws and, In addition to circumstances where
Managed by the partners or as members or, more often, by
than under the name of the usually, adoption of a Typically required for publicly a sole proprietorship would be
described in the partnership managers selected by the
sole proprietor, assumed name Shareholder (buy-sell) traded corporations, businesses considered, a single-member LLC is
agreement. members. Can also elect
publication needed. Agreement. that require venture capital, or often used by a corporation or LLC
officers.
if a broad based stock option as a subsidiary to insulate the
program is utilized. Self-employment tax treatment liability associated with a particular
Problem: Any partner can bind
Managed by the sole proprietor. may be less favorable than for line of business.
the partnership.
S corp.
No limitation on the number of
Limit of 100 shareholders, only members, no limitation on who
one class of stock is allowed, No limits on type or number of may invest, treatment of gain
Any transfer of the business Ability to raise capital is limited difference in voting rights is shareholders, different classes on distribution of appreciated
would be of the underlying since most investors would allowed, partnerships and of stock allowed (common and property more favorable,
Capital - Effect on Ability assets as opposed to a transfer prefer to invest in an entity corporations cannot be preferred) thus enabling different classes of ownership
to Raise Capital through of shares in the business. offering limited liability. shareholders, only U.S. citizens different priority for return of are allowed so there is the
Outside investment allowed only if
and residents may be capital. flexibility to provide for a
Angel Investment, VC or converted to a multi-member LLC.
shareholders. priority return of capital to
IPO investors.

LLC is almost always the better Is easier to convert S corp to C If venture capital is being
Capital needs - addressed Often used to own commercial
choice if partnership tax corp than it is LLC to C corp in sought, incorporation should be
through loan to sole proprietor. real estate.
treatment is the goal. event venture capital is sought. in the state of Delaware.

© 2007 Alan R. Singleton - www.singletonlawfirm.com


Information provided on this chart is intended to be general information only, in the nature of advertising. You should consult your
attorney when making legal or business decisions and should not rely upon the content of this chart. Alan Singleton is licensed to
practice law in the state of Illinois and is a patent attorney registered to practice before the U.S. Patent and Trademark Office.
Intellectual Property Protection Alan R. Singleton, Esq.
At a Glance singleton@singletonlawfirm.com

2001 South First Street, Suite 209 Champaign, IL 61820 217-352-3900


217 352 3900

Patents Trademarks Copyrights Trade Secrets

Commercially valuable information not


Any distinct word, name, symbol, or
Anything man-made that is new, Original work of authorship fixed in a generally known or readily
device used to identify a source of
useful, and non-obvious. tangible medium of expression. ascertainable, if reasonable efforts are
goods or services.
used to keep it secret
secret.
Not new if there is a commercial use,
Property Protected offer for sale, or public disclosure more Inherently distinctive if arbitrary,
Fixed if it is sufficiently permanent
Disclosure to one person without
(written down, recorded, painted,
than one year before a patent is fanciful, or suggestive. confidence may destroy a trade secret.
saved electronically, etc.)
applied for.

There is no one year grace period for Also distinctive if descriptive with Originality requires some amount of More efforts required for more valuable
foreign patents. acquired secondary meaning. creativity by the author. secrets.

U.S. Patent and Trademark Office for


U.S. Copyright Office within the Library
U.S. Patent and Trademark Office. federal protection. Secretary of State’s
Registration Application required. office for state protection. Registration
of Congress. Registration advised but NONE.
not required.
advised but not requried.

Right to sue others from improperly


Right to exclude others from making, Exclusive right to reproduce, prepare
Right to stop others from using acquiring the trade secret or breaching
Rights
g using,
g selling,
g or offering
g for sale in
confusingly similar marks in commerce
commerce.
derivative works, distribute, perform
confidence regarding the trade secret
secret.
U.S. or importing to U.S. publicly, and display publicly.
Does not prevent reverse engineering.

TM “Copyright” or ©, year of first


Pat. Pending. or SM if not registered with USPTO. Notice to show confidential nature to
publication, author’s name.
Public Notes employees and anyone else with
Pat. No. ######. ® if registered with USPTO. © 2007 Joe Smith. access to the information.

g
Non-registered: g as yyou
No limit as long
Life
Lif off th
the author
th plus
l 70 years.
continually use it.
Generally, 20 years from the date of No limit as long as it still qualifies as a
Duration filing. Registered: No limit as long as you Work for hire: the earlier of 95 years trade secret.
continually use it and file appropriate from publication or 120 years from
renewal papers. creation.
Infringer’s mark causes a likelihood of Infringer has copied your work without
Every claim limitation in the patent is confusion with your mark. permission. Another has knowingly
Infringement found literally or equivalently
found, equivalently, in the If your mark is famous, then you can misappropriated your trade secret for
accused device or method. Infringer’s work is substantially similar his or her own gain or to harm you.
also sue if another dilutes or tarnishes
to yours.
your mark.

Information provided on this chart is intended to be general information only, in the nature of advertising. You should © 2007 Alan R. Singleton - www.singletonlawfirm.com
consult your attorney when making legal or business decisions and should not rely upon the content of this chart. Alan
Singleton is licensed to practice law in the state of Illinois and is a patent attorney registered to practice before the U.S.
Patent and Trademark Office.