BUSINESS ENTITIES, FORMATION, AND TAXES, OH MY!

1. BUSINESS ENTITIES, FORMATION, AND TAXES, OH MY! May Lu, Esq. Tiffany & Bosco, P.A.* Camelback Esplanade II, Third Floor 2525 E. Camelback Road Phoenix, AZ 85016 (602) 255-6032 mlu@tblaw.com *Offices in: Phoenix, Arizona and Las Vegas, Nevada

2. Disclaimer • Information presented here is general information. • Choice of the right legal strategies for your specific situation depends on your fact situation and how the law and market conditions apply to that situation. • Consult professional advisors such as your accountant, insurance professional, and business attorney.

3. Choice of Business Entity:Legal Forms (Pros and Cons)

4. Legal Forms a Business May Take • Sole Proprietorship • Partnerships • General Partnership • Limited Partnership • Limited Liability Partnership

5. Legal Forms a Business May Take • Corporations • ‘S’ Corporation • ‘C’ Corporation • Limited Liability Company

6. Sole Proprietorship • Sole Proprietorship • Default for one person “owning” their own business • Unlimited Personal Liability! • Business not a “going concern,” nothing to sell at death or retirement • Fictitious name filing • No reason to use, considering allowance of one-member LLC in Arizona

7. General Partnership • An association of two or more persons to carry on as co-owners a business for profit. • All parties are equally “involved” • All partnerships have the benefit of flow-through taxation (i.e. entity does not pay tax itself, with some exceptions)

8. General Partnership • In a general partnership, all partners subject to personal liability! • Should create a written partnership agreement, otherwise at-will and subject to default rules of state of formation • Revised Uniform Partnership Act (RUPA) in Arizona

9. Limited Partnership • Still need at least one general partner (unlimited liability) • Can be a corporation, another limited partnership, etc. • Control issues (use of name) • Usually a “money” person and a “manager”

10. Limited Partnership • Some liability protection – still minimal • Gives limited liability to the “passive investor” • Only liable to extent of capital contribution • Additional filing = additional cost • Should create separate partnership agreement

11. Limited Liability Partnership • If general partnership or limited partnership, easy and wise to switch to LLP • Limited liability for all partners • Generally, Limited Liability Company is the better entity form if you can afford to plan • Cannot be partner of yourself

12. C Corporation • Default whenever a corporation is created • Taxed at corporate level – income, including dividend income, of shareholders is also taxed (Double Taxation!) • Corporate Formalities

13. C Corporation • Management structure fixed • Shareholders, Board of Directors, and Officers • Deductible Benefits to Employees • Can cut tax liability • Losses incurred by C Corporation do not flow through to owners • Should form if plan to go public soon

14. S Corporation • Tax Election of a C Corporation or Limited Liability Company • Protection still the same

15. S Corporation • Four relatively confining requirements • Must be corporation of state or U.S. territory; • Partnerships and corporations cannot be shareholders; • No more than 100 shareholders; • Only citizens or residents of U.S. may be shareholders; and • Only one class of stock (can have voting/non-voting)

16. Limited Liability Company • Management – Members and managers • Limited Liability – Even for one member • Ability to Elect Federal Taxation as Corporation or Partnership • Very Flexible Organization • Some Risk Because Newer Entity Form • No Annual Reports

17. Formation: Documents, Cost & Timeline

18. In General • Takes approximately 1 week for the Arizona Corporation Commission to file Articles of Incorporation or Articles of Organization on an expedited basis. $35.00 to expedite filings. • Other states will vary • Should seek advice of local professionals • Check/Reserve Name ($10.00) • Name appropriately • Do not forget the Internal Revenue Service (EIN, S Election)

19. Arizona Corporation Commission www.cc.state.az.us Search Corporations, LLCs, Trade Names, & Trademarks Check Name Availability Forms, Instructions, and Fees

20. Arizona Secretary of State http://www.azsos.gov/business_services/filings.htm Search Partnerships, Trade Names & Trademarks Checklist for Limited Partnership Filings Applications for Trade Names & Trademarks Forms, Instructions, and Fees

21. C Corporation • Articles of Incorporation ($60) • Statutory Agent • Certificate of Disclosure • Organizational Meeting Minutes (Attorney) • Bylaws (Attorney) • Certificate of Good Standing ($10.00) • Shareholders’ Agreement (Attorney)

22. C Corporation • Keep Originals – Corporate Book (approx. $80 for leather, with certificates, etc.) • Employer Identification Number • Publication of Articles – local newspaper; 3 consecutive weeks (Cost Varies) • Get affidavits from each newspaper – at least two originals from each • Annual Report ($45)

23. S Corporation • Very Similar to C Corporation • Tax Election – Flow-through Taxation • Make Sure to Meet All Requirements

24. Limited Liability Company • Articles of Organization ($50) • Operating Agreement (Attorney/CPA) • Member-Managed • Manager-Managed • Publish Articles – same requirements as corporation (Cost Varies)

25. Partnership • Default entity for two or more persons • “An association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intended to form a partnership.” A.R.S. § 29-1012(A) • Partnership Agreement!

26. Limited Partnership • Certificate of Limited Partnership ($10 fee; $3.00 per page) • File Certificate with Secretary of State (Two signed copies) • Partnership Agreement (Attorney/CPA)

27. Limited Liability Partnership • Partners Must Agree • By Vote or Partnership Agreement • If agree, file a statement of qualification • $ 3.00/page • A.R.S. § 29-1101(C) • Annual Report – Simple ($3.00)

28. QUESTIONS?