Riddle & Butts, LLP Business En es & Succession Planning - Riddle & Butts, LLP
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Riddle & Butts, LLP Business EnƟƟes & Succession Planning
A NOTE FROM THE TEAM
Introduction tate Planning by the Texas Board of Legal Specialization.
Christine served Harris County as Judge of Probate Court 4
80 to 90 percent of businesses in the United States are small, from 2011 to 2018.
family-owned businesses. These small businesses account for Caleb Fielder is an attorney and negotiator with over a dec-
49 percent of the gross national product and employ 59 per- ade of experience supporting business development and nego-
cent of the workforce in the United States. tiating commercial agreements and deal structures. He is a
When making the choice of business entity, it is important to published writer and presenter who has been a guest lecturer
consider and balance the following goals: 1) liability protec- for a range of legal education and seminars. He received a
tion; 2) maintenance of control over the operation and assets Bachelor of Arts degree from the University of Texas in 2003
of the business; 3) minimization of income and other related and graduated, with honors, from UT Law in 2007.
taxes; and 4) maximization of valuation discounts for transfer Kristi Gourley is a 1997 graduate of Texas A&M University
tax purposes. where she obtained her BS in Biomedical Science. In 2003,
Additionally, planning for the death or incapacity of the busi- she graduated from the Paul M. Hebert Law Center at LSU,
ness owner is critical to the growth, value, and longevity of where she was an editor for the Louisiana Law Review.
the business.
About the Team
Michael C. Riddle began his practice of law as a gift and
estate tax attorney for the Internal Revenue Service. He grad-
uated from the University of Houston Law School in 1972
and in 1991 became Board Certified by the Texas Board of
Legal Specialization in Estate Planning and Probate. He is the
Managing Partner of Riddle & Butts, LLP and has been prac-
ticing law in Harris County and surrounding counties for over
40 years.
Christine Butts is a 1993 graduate of the University of Texas
at Austin where she obtained her BBA in International Busi-
ness. In 1996, she graduated from the University of Houston
Law School. Christine is Board Certified in Probate and Es-
2
WHICH BUSINESS ENTITY IS MOST SUITABLE?
Choice of Business Entities bility of a business interest may be just as important. In
addition to shareholder agreements, partnership agree-
Generally speaking, there are four options to choose from
ments, and limited liability company agreements, state
when selecting a business entity in Texas:
and federal laws govern the transferability of business
Sole Proprietorship / General Partnership; interests. The choice of business entity impacts the trans-
Corporation; ferability of business interests in the event of a stakehold-
Limited Liability Company; and er's disability, death, divorce, and exit from the business.
Limited Partnership. While each form of business entity manages these issues
There are other business entities, of course, such as profes- in a unique way, the governing documents of any busi-
sional corporations, non-profits, and limited liability partner- ness entity should address the following transferability of
ships, but those listed above are the most common for-profit interest issues: 1) Who is a permissible successor stake-
entities. holder in the event of a death, incapacity, divorce, or exit
of an interest holder? and 2) How should a stakeholder's
Explore the Non-tax Related Choice of Entity
interest be valued in the event a stakeholder wants to sell
Issues his or her interest or in the event the stakeholder dies, be-
When forming a business structure, it is important to assess comes divorced, is disabled, or is separated from his or
the non-tax related issues separately from the analysis of the her employment with the business? In addition to careful-
tax-related issues. ly crafting the governing documents of the business entity
relating to the transferability of business interests, the
1. Benefits of a Limited Liability Shield. Naturally, once a
well-advised business owner must consider the state and
business owner hires employees or takes on a partner, the
federal laws governing the transferability of business in-
business owner becomes concerned about protecting per-
terests as those laws relate to each business entity.
sonal assets from the liabilities of his business. Almost
every business owner, excluding the sole proprietor, will 3. Management Structure. Another important non-tax is-
benefit from shielding his personal assets from the liabili- sue to resolve when selecting a business form relates to
ties of the business via the operation of the business with- the management structure of the business form. Key con-
in a business entity that provides, via statute, such protec- siderations with regard to the management structure of a
tion. business include: 1) whether control of the business will
be tied to equity interests; 2) whether control of the busi-
2. Transferability of Interests. While most entrepreneurs
ness will be centralized or diffused; and 3) how control of
are familiar with the veil of protection offered by the cor-
the business is transferred.
porate form, lesser-known issues involving the transfera-
3
OVERVIEW OF FORMS OF BUSINESS ENTITIES
Sole Proprietorship/General Partnership Corporation
The sole proprietorship or general partnership is formed when A corporation can only be created by filing articles of incor-
one or more individuals go into business. No other action is poration with the Texas Secretary of State and the operation
needed. If the business is conducted under an assumed name, of a corporation is governed by the Texas Business Organiza-
then the business owner(s) must file an assumed name certifi- tions Code. A corporation provides limited liability for its
cate and obtain an employer identification number from the shareholders such that liability is limited to their interest in
the corporation. Consequently, when a judgment is recovered
IRS. This form of business entity, however, does not offer
by a creditor, it is limited only to the assets and liabilities of
liability protection to the business owners. When it comes to
the corporation and not those of the shareholders. Exceptions
formalities, this form does not require observation of formali-
to this include:
ties as the partnership is the alter ego of the business owner.
1. No Business Asset Protection. This is an often ignored
Sole proprietorships and general partnerships offer a very drawback of the corporate form. Business asset protection
simple form of taxation. This is because sole proprietorships is the protection of business assets from the individual
are considered disregarded entities and general partnerships liabilities of the business owners. For example, a judg-
offer flow through taxation of profits and losses straight to the ment creditor of a shareholder could attack the shares of a
owners of the business. Additionally, neither of the two are shareholder, resulting in the loss of shares to the creditor.
subject to franchise tax in the State of Texas. This could even lead to the creditor becoming the majori-
ty shareholder and ultimately running the corporation and
Typically, businesses that utilize these forms possess assets of selling its assets in order to satisfy the judgement.
little value and the business owners perform the business ac-
tivities or they hire independent contractors to do them. It is 2. Piercing the Corporate Veil. This refers to an action
recommended that, when a small business accumulates assets where the courts disregard the doctrine of limited liability
or takes on employees, it should consider doing business as a and hold a shareholder responsible for the actions of the
statutorily created business entity in order to limit liability. corporation. To prevent this, the shareholders must ob-
serve corporate formalities. Corporations should keep a
minute book including the minutes of meetings, maintain
"Opportunities don't happen. financial records separate from the shareholders, issue
You create them." stock certificates, adhere to bylaws, maintain the stock
ledger, hold directors meetings to approve expenditures,
—Chris Grosser ensure that the corporation is adequately capitalized and
insured, and avoid transactions involving self-dealing.
A farm like any When some think
other small of business they
business must imagine big build-
take necessary ings downtown
steps to be rec- and suits. Howev-
ognized as an er, from the board
entity and plan room to your gar-
for succession. age these same
principles apply.
4
OVERVIEW OF FORMS OF BUSINESS ENTITIES
Limited Liability Company (LLC) Limited Partnership (LP)
The limited liability company (LLC) is formed by filing arti- An LP is created by filing a certificate of formation with the
cles of organization with the Texas Secretary of State and it is Texas Secretary of State. The LP provides limited liability
governed by the Texas Business Organizations Code. Like the protection, such that each limited partner’s liability is limited
corporation, the limited liability company offers limited lia- to their interest in the partnership. However, the general part-
bility protection to its members, such that each member’s lia- ner of an LP is personally liable for the liabilities of the LP.
bility is limited to each member’s interest in the limited liabil- As a result, it is recommended that such a business owner
ity company. Consequently, if a liability accrues within the form another business entity (such as a limited liability com-
limited liability company, then the members’ personal assets pany) to serve as the general partner of the LP, shielding the
will be protected from a judgment creditor of the limited lia- business owner from personal liability. When selecting a busi-
bility company, provided that the company form was respect- ness entity to be used as the general partner of an LP, most
ed by the members and the courts. practitioners favor the use of the limited liability company
The most significant difference between a limited liability over the corporation because the limited liability company
company and a corporation relates to business asset protec- provides business asset protection, which protects the assets
tion. In the event a judgment creditor seeks to satisfy a judg- of a business from the individual liabilities of its stakeholders.
ment with a member’s interest in a limited liability company, The general partner typically has sole control of the manage-
the creditor will obtain only the rights of an assignee, or a ment of the LP. Also, like the LLC, the assets of an LP are
right to distributions out of income only, withholding voting protected from the judgment creditors of the limited partners.
rights from the creditor. Therefore, the company and its assets The judgment creditor who satisfies a judgment with a part-
are protected from the judgment creditors of its members. ner’s interest in an LP is treated as having the same rights as
Just like with a corporation, the courts may pierce the corpo- an assignee, or an interest in the income of the LP that would
rate veil and hold individual shareholders responsible for the otherwise be distributed to the indebted partner.
actions of the limited liability company as a whole. Also like As with any other type of entity, the structure of the LP must
a corporation, a limited liability company must adhere to for- be respected by its partners. If respected, then the personal
malities in order to be respected by the courts, thereby shield- assets of the limited partners are protected from a judgment
ing individuals from liability. Generally, the same rules re- creditor of the LP. To ensure this protection, adherence to
garding formality apply to both corporations and LLCs. formalities is required.
5
FIDUCIARY DUTIES
Fiduciary Duties Defined breach of this duty include self-dealing and usurpation of
A fiduciary duty is the legal responsibility to act solely in the corporate opportunities.
best interest of another person or entity, and Texas law places Generally, but with notable exceptions, shareholders of a cor-
very strict obligations on those with such a duty. While cer- poration do not owe one another fiduciary duties.
tain designated relationships give rise to a formal fiduciary
Limited Liability Companies
duty, courts have also recognized that fiduciary duties can
arise as a result of informal relationships of trust and confi- Various provisions of the Texas Business Organizations Code
dence in certain business contexts. implicitly identify fiduciary duties that may exist for manag-
ers or managing members of an LLC. A governing person of
In each type of entity, the governing documents may alter (to
an LLC (a manager, managing member, officer, etc.) is char-
some extent) the duties and liabilities of controlling or gov-
acterized as an agent of the LLC and therefore owes duties of
erning persons. Deliberate care and legal advice is therefore
care and loyalty to the LLC, but not necessarily to the individ-
necessary for the proper drafting of all relevant governing
ual members.
documents.
In certain circumstances, Texas courts have held that a fiduci-
Corporations
ary duty may be owed by one member to another. Such sce-
Generally, officers and directors of a corporation will owe narios include: 1) where one member has sole control or man-
fiduciary duties to the corporation (but usually not to the indi- agement authority over the LLC; 2) where there is a close,
vidual shareholders). Courts have held that officers and direc- personal relationship of trust and confidence between the
tors owe the following fiduciary duties to the corporation: members; and/or 3) where a majority interest owner is buying
1. Duty of Obedience. This duty forbids so-called “ultra out or redeeming the ownership interest of a minority owner.
vires” acts or acts that lie outside the authority of a corpo- Partnerships: General (GP) & Limited (LP)
ration.
Partners (in a GP) and general partners (in an LP) are general-
2. Duty of Care. This duty requires diligence and prudence
ly held to a fiduciary standard with respect to the partnership,
in managing the corporation’s affairs. However, the
and the other partners (in a GP) or limited partnership (in an
“business judgment rule” will often protect an officer or
LP). Generally, in an LP, limited partners should not owe
director for acts that are within the honest or good faith
fiduciary duties to the LP or to the other partners based on
exercise of their business judgment. their status as limited partners since they are considered mere-
3. Duty of Loyalty. This duty obligates actions be made in ly passive investors. Nonetheless, some Texas courts have
good faith and does not allow personal interests to prevail imposed fiduciary duties on limited partners.
over the interests of the corporation. Examples of a
6
TAXATION
Sole Proprietorship/General Partnership S Corporation
Sole proprietorships and general partnerships are treated simi- Under subchapter S of the Internal Revenue Code, if a corpo-
lar as compared to “pass-thru” entities. A pass-thru (or flow- ration wishes to be taxed as a subchapter S corporation, then
through) entity is an entity that passes its income, losses, de- the corporation will be taxed as a flow-through entity. In or-
ductions, or credits to its owners. For business owners that der to qualify for subchapter S treatment, the corporation
have chosen a sole proprietorship or a general partnership, must adhere to the following characteristics: 1) it must be a
there is no legal distinction between the business and the domestic corporation; 2) it must have no more than 75 share-
owners. The business is not taxed separately from the own- holders; 3) the shareholders must be individuals, estates, cer-
ers. tain exempt organizations, or qualified subchapter S trusts; 4)
C Corporation nonresident aliens may not be shareholders; 5) only one class
Under federal law, a corporation may be taxed as a corpora- of stock is permitted; and 6) its tax year must end on Decem-
tion under subchapter C of the Internal Revenue Code or as a ber 31, unless electing otherwise. A corporation electing to be
pass-thru entity under subchapter S of the Internal Revenue taxed as an S corporation allows flow-through taxation so that
Code. The Internal Revenue Code provides that, unless the net profits go straight to the shareholder’s individual income
corporation elects otherwise, it will be taxed under subchapter tax rather than being first taxed at the corporate level.
C of the Internal Revenue Code. In a C corporation, net cor- Filing Requirements
porate income is subject to income tax at the corporate level. Both C and S corporations must file federal income tax re-
If the net income is distributed to shareholders and not added turns. C corporations use Form 1120 to calculate their taxes.
to the retained earnings of the corporation, the shareholders A business can file Form 2553 and elect to be taxed as an S
must pay income tax on the dividend, resulting in what many corporation. S corporations file Form 1120-S as an infor-
practitioners refer to as “double taxation.” Some individuals mation return and must also provide Form K-1 to each share-
get around this double taxation issue by taking the net income holder, so that each such shareholder may include the K-1
out of the corporate entity as wages. These wages are a de- with their individual income tax return.
duction to the corporation and income to the shareholder em-
ployee.
"...but in this world nothing can be said
to be certain, except death and taxes."
—Benjamin Franklin
7
TAXATION
Limited Liability Company Entity Classification Elections
When it comes to taxation, the limited liability company is the All business entities are assigned a default tax classification.
most flexible: For example, a single-person LLC is taxed as a disregarded
entity, and a multi-member LLC is taxed as a partnership.
1. Sole proprietorship. By default, if a single person or en-
A form 8832 can be filed for an eligible business entity want-
tity forms an LLC, then the taxation of such will be as a
ing to elect out of its default tax classification. Generally, any
disregarded entity, or taxed as a sole proprietorship.
eligible business entity with at least two members may elect
Therefore, all of the company’s income will be listed on to be taxed either as a partnership or a corporation.
Schedule C of the owner’s 1040 individual income tax
Limited Partnership
return. Although disregarded for tax purposes, the condi-
tions of limited liability and the benefits thereof are hon- Federal partnership taxation is governed by subchapter K of
ored under state law. the Internal Revenue Code. The partnership is required to file
2. Partnership. By default, if two or more persons or enti- Form 1065 and issue a K-1 to each partner recording each
ties form an LLC, then the taxation thereof will be partner’s net income or loss. Such taxation is referred to as
deemed a partnership and the LLC will be required to file “flow-through” taxation, as it is not taxed at the partnership
Form 1065, the form partnerships use to report income. level but instead on the partner’s individual income tax return.
The profits and losses of the LLC will flow through to the Partnership taxation offers unique flexibility with regard to
members and such profits and losses are reported on the the distribution of income and losses to the partners. This
K-1 which accompanies the Form 1065, and a K-1 is de- flexibility comes from the ability to determine the partner’s
livered to each member of the LLC. distributive share of income or loss via the partnership agree-
3. C Corporation. An LLC may elect to be taxed as a cor- ment. Therefore, a partner’s distributive share of income and
poration and file a Form 1120 to report LLC income. As a or losses need not be the same for each item. Another key
result, net income will be taxed inside the company at the advantage of taxation under subchapter K involves the addi-
lower corporate tax rate, but dividends paid to the mem- tion of partnership liabilities to the basis of the limited part-
bers of the LLC will again be taxed to the members, as ners.
the members report such dividends on their individual
What is more, limited partnerships are particularly useful in
1040 income tax return.
the context of multi-generational business succession plan-
4. S Corporation. An LLC may elect to be taxed as an asso-
ning where estate, gift, and generation-skipping transfer taxes
ciation taxable as a corporation using Form 8832. If the
are at issue, as the value of limited partnership interest may be
LLC also files a 2553 election, it will be taxed as a Sub-
compressed for transfer tax purposes.
chapter S corporation.
8
TAXATION: TEXAS FRANCHISE TAX
Franchise Tax formed outside the State of Texas. Under Texas law, the
"margin," or an entity's revenue, on which the franchise tax is
Pursuant to the Texas Tax Code, each taxable entity formed in
based, is apportioned based on the entity's gross receipts in-
Texas or doing business in Texas must file and pay franchise
state versus out of state.
tax. Sole proprietorships and most traditional general partner-
Texas Tax Code Section 171.106 states that, ". . . a taxable
ships are not considered taxable entities under the Texas Tax
entity's margin is apportioned to this state to determine the
Code and are not subject to the franchise tax. However, most
amount of tax imposed under Section 171.002 by multiplying
other business entities are subject to the franchise tax includ-
the margin by a fraction, the numerator of which is the taxa-
ing corporations, limited liability companies, banks, profes-
ble entity's gross receipts from business done in this state, as
sional corporations, and limited partnerships. Certain busi-
determined under Section 171.103, and the denominator of
nesses may qualify as “passive entities” under the Texas Tax
which is the taxable entity's gross receipts from its entire busi-
Code and be exempted from the franchise tax.
ness, as determined under Section 171.105."
Calculation of the Franchise Tax
A Texas business that had fifty percent of its gross receipts
The Franchise tax is based on the taxable entity’s “margin.” from business done out of state would only have fifty percent
Generally, that margin is calculated in one of the following of its margin subject to potential franchise tax.
ways:
Annual Filings
Total revenue times 70%;
All business entities are required to file an Annual Franchise
Total revenue minus costs of goods sold;
Tax Report by May 15 of each year, even if no taxes are
Total revenue minus compensation; or
owed.
Total revenue minus $1 million.
The failure to timely file these tax reports can have enormous
For entities with revenue less than $1,180,000, no franchise consequences. The Texas Secretary of State will terminate a
tax is due. The franchise tax rate of 0.75% is applied to busi- business entity or forfeit its formation certificate for failure to
nesses other than retail or wholesale businesses and 0.375% file these reports.
for retail or wholesale businesses. Moreover, the Texas Tax Code obligates the Texas Comptrol-
Apportionment ler to forfeit the limited liability privileges of a business entity
for failure to timely file its reports. This can result in a mem-
Just because a business is formed in Texas, it does not auto-
ber, partner, owner, officer, or director being personally liable
matically follow that the business will owe franchise taxes on
for the debts of a business entity incurred during the period of
its revenue. Generally, a Texas business will not have Texas
forfeiture.
franchise tax liability for gross receipts from business per-
9
MERGERS & ACQUISITIONS
Documents to Gather Acquiring the outstanding stock of the business also means
that the buyer will succeed to all of the liabilities of the target
Clients looking to acquire an existing business should gather
business. Generally, previous debts or legal claims against
as much information as possible including:
the seller will be assumed by the buyer.
Financials of the target company (balance sheets, prof-
Lastly, if there are multiple outstanding shareholders, it can
it and loss statements, etc.);
be difficult to complete the acquisition.
Customer list (with historic revenues);
Employee list; and Weighing the Options—Acquisition of Assets
List and description of assets (including estimated fair Assets must be carefully identified and described in the acqui-
market value). sition document, and the buyer must take care to ensure that
each asset is clear of mortgages and liens. Often, new owner-
Pathways to M&A
ship of assets must be registered (e.g., in the real property rec-
Broadly, businesses are acquired in one of two ways: 1) ac- ords of the relevant county, vehicles must be registered with
quisition of the outstanding stock; and 2) acquisition of sub- the state, etc.). This can be costly and time consuming.
stantially all of the underlying assets.
Lastly, the assets themselves may not be sufficient without
1. Acquisition of Outstanding Stock. This would also in- the contracts (with customers, vendors, etc.) that go along
clude acquisition of an LLC’s membership interest and with them. Many contracts contain restrictions on the trans-
acquisition of the partnership units in a limited partner- ferability of the interests under such contracts and required
ship; or consents or assignments can be difficult and time consuming
2. Asset Purchase. Acquisition of substantially all of the to obtain.
business’s underlying assets.
Weighing the Options—Acquisition of Stock
Acquiring the outstanding stock of a business will result in
the buyer obtaining a carry-over basis in the underlying as-
sets, such that the buyer will succeed to the same basis in the
assets that the seller had before he sold. This is less advanta- “Success usually comes to those who
geous to the buyer as compared to purchasing the underlying are too busy to be looking for it."
assets of the business and obtaining a step-up in basis associ-
—Henry David Thoreau
ated with the price paid for those assets.
10BUSINESS SUCCESSION PLANNING
Multi-Generational Planning elements of both categories in order to suit the needs of a par-
ticular business and its owners.
For business owners, business succession planning is crucial.
Statistics have shown that approximately seventy-five percent 1. Cross-Purchase Agreement. This type of agreement
(75%) of all businesses fail to survive past the first generation permits one or more of the remaining co-owners to direct-
of owners, and more than eighty-five percent (85%) fail by ly purchase the withdrawing owner’s interest in the busi-
the third generation. ness; or
Multi-generational, business succession planning is compli- 2. Redemption Agreement. This type of agreement pro-
cated when estate and gift taxes, along with generation skip- vides that the business itself (e.g., the LLC, LP, or corpo-
ping transfer taxes factor in to the planning process. The well ration) will buy back or redeem the withdrawing owner’s
informed business owner will coordinate his estate plan with interest in the business.
his business succession plan and may consider the use of dyn- Passing Your Business to The Next Generation
asty trusts and grantor retained annuity trusts. What is more, Leaving a business to one’s family or key employees can be a
business owners should consider forming a revocable trust as daunting task. Many business owners want the next genera-
the centerpiece of their estate plan to keep the settlement of tion to “earn” the business, not simply inherit it or receive it
their estate private in the event of their death. as a gift. Just as often, a business owner will face the dilem-
Buy Sell Agreements ma of how to ensure that a key person have control of the
A buy sell agreement is a contract among the co-owners of a business while providing the economic benefits of the busi-
business. Typically, such an agreement addresses what hap- ness to a wider class of family members.
pens when one or more co-owners die or withdraw from the Pathways of Succession
business. It can also govern situations where a co-owner de- A buy sell agreement, employee stock option plan, limited
clares bankruptcy or divorces their spouse. partnership agreement, or other contractual arrangement can
The goal of a well-drafted buy sell agreement is to avoid fu- provide a transactional pathway for a business owner to trans-
ture disputes and to maintain the success of the business by fer the company to the next generation.
ensuring a reliable and predictable plan for successor owner- Also, utilizing (or converting to) an appropriate business enti-
ship in case of death or unplanned events. ty—such as a limited partnership, can facilitate the transfer of
Buy sell agreements generally fall within one of two catego- the economic benefits of a business while retaining and/or
ries, but it is not unusual for a buy sell agreement to combine centralizing the control over that business into the hands of a
single or select group.
11WHICH BUSINESS ENTITY IS MOST SUITABLE?
SOLE PROPRIETORSHIP/ Limited Liability Limited
GENERAL PARTNERSHIP
Corporation
Company (LLC) Partnership (LP)
Formed when one or more
Formation & individuals go into business Formed by filing ArƟcles of Formed by filing CerƟfi-
together. Formed by filing CerƟficate
IncorporaƟon, CerƟficate of cate of FormaƟon and
Filing of FormaƟon and filing fee
Assumed Name CerƟficate FormaƟon and filing fee with Secretary of State
filing fee with Secretary of
Requirements filing and payment of filing with Secretary of State State
fees
None Yes. Limited Partner’s
Yes. Shareholder’s liability is
Yes. Member’s liability is liability is limited to such
Note: General Partnership limited to shareholder’s
Liability interest in enƟty if corpo-
limited to member’s inter- Partner’s interest in enƟty.
can elect to be a limited est in enƟty if enƟty’s veil is However, General Partner
Protection liability partnership by filing rate veil is not pierced. not pierced. Also, business has unlimited liability.
a statement with the Secre- However, no business asset asset protecƟon is available Business asset protecƟon
tary of State protecƟon is available
is available
Corporate formaliƟes need
None needed as enƟty is Members must adhere to
to be observed in order for Structure of enƟty must
Formalities alter ego of business own-
corporate structure to be
formaliƟes of operaƟng LLC
be respected by partners
ers to keep veil intact
respected by courts
C Corp: Subject to double Tax schemes possible: Sole
Simple because it is pass Pass through taxaƟon. Like
taxaƟon. S Corp: Pass Proprietorship, Partnership,
Taxation through taxaƟon. Also, not
through taxaƟon. It is sub- C Corp, and S Corp. LLC is
other business enƟƟes, LP
subject to franchise tax is subject to franchise tax
ject to franchise tax subject to franchise tax
Small businesses where Business owners seeking
Any type of business, small
business owns assets of venture capital, going pub-
to large, seeking limited Families oŌen use family
liƩle value and owners lic, growth, increase value
liability protecƟon in a sim- limited partnerships for
Common Uses perform acƟviƟes of busi- of business, or requiring a
ple enƟty, and desiring to estate planning and asset
ness. Not appropriate for large capital base. Small
protect business assets protecƟon purposes
moderately wealthy to businesses are usually S
from shareholder liabiliƟes
wealthy business owners CorporaƟons
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