Tax and Legal Charactristics of Various Businesses. Tax Compliance and Planning TCP [Video]

In this video, we discuss the tax and legal characteristics if various businesses as covered on the tax compliance and planning section of the CPA exam.
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Legal Characteristics of Business Entities Including Transferability
Business entities vary widely in their structure, management, liability, and the ability to transfer ownership. Understanding these differences is crucial for entrepreneurs, investors, and legal advisors. Below, we provide a detailed comparison of several common types of business entities:

Sole Proprietorship
Ownership: Single individual.
Formation: No formalities required.
Liability: Unlimited personal liability.
Management: Sole proprietorship or appointed manager.
Transferability of Ownership: The sole proprietor can freely sell or transfer the business.
General Partnership/Joint Venture
Ownership: Two or more individuals, no maximum limit.
Formation: Can be informal, based on actions, verbal, or written agreements.
Liability: Unlimited personal liability.
Management: Directly by owners or a designated managing partner.
Transferability of Ownership: Ownership interest cannot be transferred without unanimous consent of all partners.
Limited Liability Partnership (LLP)
Ownership: Two or more individuals, no maximum limit.
Formation: Requires filing a statement of qualification with the state.
Liability: Limited, except for personal negligence.
Management: Equal rights among partners unless otherwise agreed.
Transferability of Ownership: Partners cannot transfer ownership without unanimous consent.
Limited Partnership
Ownership: At least one general and one limited partner.
Formation: Certificate of Limited Partnership must be filed with the state.
Liability: General partners have unlimited liability; limited partners’ liability is restricted to their investment.
Management: Managed by general partners; limited partners usually do not participate.
Transferability of Ownership: Requires unanimous consent for transfer.
Limited Liability Company (LLC)
Ownership: One or more individuals, no maximum limit.
Formation: Filing articles of organization with the state is necessary.
Liability: Members are not personally liable beyond their investment.
Management: Members directly manage or appoint a manager.
Transferability of Ownership: Transfer usually needs unanimous consent, unless otherwise agreed.
Corporation
Ownership: One or more individuals, no maximum limit.
Formation: Incorporation requires filing articles of incorporation.
Liability: Shareholders’ liability is limited to their investment.
Management: Managed by a board of directors and officers.
Transferability of Ownership: Shares can be freely transferred, unless restricted by agreement.
Subchapter S Corporation
Ownership: Restricted to 1 to 100 qualifying shareholders.
Formation: Similar to corporations but requires an “S” election with the IRS.
Liability: Shareholders’ liability is limited to their investment.
Management: A board of directors and officers manage the corporation.
Transferability of Ownership: Generally transferable, except to non-qualifying shareholders (e.g., foreign or entity shareholders).
Each business entity type offers a unique combination of legal characteristics catering to the specific needs and preferences of business owners. The choice of entity impacts not only the daily operations and tax implications but also the flexibility in ownership transfer and protection against liabilities.

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