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    6 Replies Latest reply on Feb 7, 2008 1:34 AM by bankpig

    Difference beetween different corporation types

    waterworld Newbie
      Hi,
      I'm planning to start a business with a partner who is a resident of another country. The main business would be in exporting live seafood from US to Russia. My partner is a Russian citizen and I'm a US citizen.
      To be honest I don't even know where to start, so any sugegstions are welcome.
      I have million questions, but let me just start with a few:
      1. Can a citizen of another country be a partner in US corporation?
      2. What is the best corporation type to use and what are the differences?
      3. Do I have to use a lawyer to incorporate or i can do it myself?
      4. What is approximate cost of creating new corp?
      5. What else do I need to create?

      Thanks in advance.
        • Re: Difference beetween different corporation types
          LUCKIEST Guide
          Hi and welcome to this web site. If I was planning to start a business with a partner who is a
          resident of another country, the first thing I would do is get a Lawyer.
          Anybody going into business to MAKE money should spend money on a Lawyer, an Accountant
          and maybe an Insurance Agent.
          The second thing I would do is contact SCORE. SCORE is FREE and helps people going
          into business. They will help you with most of your questions FREE.
          Good luck, LUCKIEST
          • Re: Difference beetween different corporation types
            bankpig Adventurer
            Hi Waterworld,

            Only you and your partner can decide on which is the best legal organization for your business. You can organize your business by yourself (after you learn the process), with a lawyer, or with a legal service company like legalzoom.com. An attorney will charge you a few thousand on top of registration fees and Legalzoom will charge a few hundred.

            The following guide is a little long, but hope it helps:

             

            The Sole Proprietorship
            The sole proprietorship is thought of as the quickest and easiest way to set up a business operation. There are no blanket prerequisites, nor are there any high costs in starting a sole proprietorship. There may be some minor formalities, however, that will need attention depending on your state or your jurisdiction. All of these procedures are simple and can be done without the assistance of an attorney or accountant regardless of the state in which you are doing business. Once you start a sole proprietorship, you are the sole owner. Unless you are in a community property state in which your spouse is vested with a one-half interest, you alone have full control and responsibility for the operation.

             

            The General Partnership
            Like the sole proprietorship, starting up the general partnership could be a relatively easy process. A few items that you would be best advised to spell out in writing are:

            • The amount of capital each partner is expected to contribute up front;
            • The rights and duties of the partners;
            • The method for sharing profits and losses;
            • The authorization for cash withdrawals and salaries,
            • The methods for resolving disputes or taking in new partners; and
            • The method for dissolving the partnership should dissolution become necessary. Remember, this is often the case.

            The Limited Partnership
            A limited partnership is much like a general partnership except for one important fundamental difference. The limited partner is protected by law because the limited partner's legal liability in the business is generally limited to the amount of his or her investment. It enables this special type of investor to share in the partnership profits without being exposed to its debts in the event the company goes out of business. This protection exists as long as the limited partner does not play an active role in the partnership operation.

             

            Corporations and LLCs
            Unlike the partnerships described above, the corporation is considered an artificially created legal entity that exists separate and apart from those individuals who created it and carry on its operations. With as little as one incorporator, a corporation can be formed by simply filing an application for a charter with the respective state. By filing this application, the incorporator will put on record facts, such as:

            • The purpose of the intended corporation,
            • The names and addresses of the incorporators,
            • The amount and types of capital stock the corporation will be authorized to issue, and
            • The rights and privileges of the holders of each class of stock.

            It is true that operating as a corporation has its share of drawbacks in certain situations. For example, as a business owner, you would be responsible for additional record keeping requirements and administrative details. More important, in some cases, operating as a corporation can create an additional tax burden. This is the last thing a business owner needs, especially in the early stages of operation. Remember, aside from tax reasons, the most common motivation for incurring the cost of setting up a corporation is the recognition that the shareholder is not legally liable for the actions of the corporation. This is because the corporation has its own separate existence wholly apart from those who run it. Additional reasons why the corporation proves to be an attractive vehicle for carrying on a business are:

            • Unlimited life. Unlike proprietorships and partnerships, the life of the corporation is not dependent on the life of a particular individual or individuals. It can continue indefinitely until it accomplishes its objective, merges with another business, or goes bankrupt. Unless stated otherwise, it could go on indefinitely.
            • Transferability of shares. It is always nice to know that the ownership interest you have in a business can be readily sold, transferred, or given away to another family member. The process of divesting yourself of ownership in proprietorships and partnerships can be cumbersome and costly. Property has to be retitled, new deeds drawn, and other administrative steps taken any time the slightest change of ownership occurs. With corporations, all of the individual owners' rights and privileges are represented by the shares of stock they hold. The key to a quick and efficient transfer of ownership of the business is found on the back of each stock certificate, where there is usually a place indicated for the shareholder to endorse and sign over any shares that are to be sold or otherwise disposed of.
            • Ability to raise investment capital. It is usually much easier to attract new investors into a corporate entity because of limited liability and the easy transferability of shares. Shares of stock can be transferred directly to new investors, or when larger offerings to the public are involved, the services of brokerage firms and stock exchanges are called upon.
            There are pros and cons to operating your business as a corporation. One of the biggest tax disadvantages for the ordinary C corporation is the dreaded double taxation. Many business owners opt for electing to operate their corporations under subchapter S of the Internal Code. Also known as an S corporation, this entity allows income to pass through to the individual shareholders.

            The Limited Liability Company (LLC): New Kid on the Block
            The LLC is now the preferred choice in the following situations where:

            • Legal liability protection is a primary concern
            • A simplified "one time" tax on the owners is preferred to dealing with cumbersome corporate tax liability
            • The entity cannot qualify for subchapter S status.

            An LLC is a hybrid entity that has the legal protections of a corporation and the ability to be taxed (one time) as a partnership. In many regards, LLCs are treated much like S corporations for tax purposes. However, there are some additional advantages over S corporations, including the following examples:

            • The LLC usually offers better leeway for owners who wish to write off business losses in a business that relies on entity-related debt that is incurred
            • The LLC allows greater flexibility for the owner to take assets out of the company without incurring unplanned tax liability

            Remember to check with your lawyer or accountant about the advantages of the LLC in your particular state. Ask up front what it would cost to form a corporation versus the cost of forming an LLC. You may be surprised to learn that in some states an LLC could be established by filing a simple, one-page document, which lays out the Articles of Organization of your LLC, with the secretary of state. You can form an LLC for any lawful business as long as the nature of the business is not banking, insurance, and certain professional service operations. By simply filing articles of organization with the respective state agency, an LLC takes on a separate identity. Similar to a corporation, but without the tax problems of the corporation, it will be taxed like a partnership.