Hardwood Floors June/July 2018

Choice of Business Entity (Continued)

law is more developed than LLC law which provides more certainty. Corporation The two most common types of corporations are the C-Corporation (C-Corp) and S-Corporation (S-Corp). A C-Corp is owned by one or more stockholders, and there are no restrictions on the types of owners. An S-Corp may be owned by one to one hundred stockholders and with certain limited exceptions, only U.S. individuals can be stockholders. The liability of shareholders, like members of an LLC and limited partners in a partnership, is limited to the amount of capital contributed to the corporation. Corporations are managed by a board of directors who designate officers to manage the day-to- day operations of the corporation. As a result, shareholders do not have much control over the management of the corporation, but certain major decisions are required to be approved by the shareholders. The board of directors is typically given great deference in its decisions, except in cases of fraud, conflicts of interest, or breach of fiduciary duty. Corporations are subject to more formalities and are more regulated than LLCs and partnerships. These

formalities and regulations result in more time and costs related to the formation and organization of the corporation. Furthermore, there is a well-developed body of corporate case law and statutes, particularly in the state of Delaware where a large number of corporations are incorporated, which provides greater certainty, but also less flexibility than LLCs and partnerships. Conclusion All three entity structures described in this article shield the business’ owners from personal liability and are generally preferable to a sole proprietorship. It is important to note, however, that there is a possibility that a court will “pierce the corporate veil,” which means subject the owners to personal liability for the liabilities of the business, in the event there is fraud, there is no real distinction between the entity and its owners, the business is not adequately capitalized and/or the business has failed to follow corporate formalities. Kailey Grant is an Associate with the Corporate and Real Estate Departments at Barnes & Thornburg LLP in Chicago. She can be reached at kgrant@btlaw.com. This article shall not be considered legal advice. In all cases, groups should consult their legal counsel.

Partnership There are a number of different forms of partnerships. The two most common kinds of partnerships are limited partnership (LP) and limited liability partnership (LLP). An LP is comprised of two or more partners and two classes of partners; one general partner and one or more limited partners. The general partner is typically responsible for the management of the LP and may or may not make a contribution to the LP. However, the general partner has unlimited liability, which is a disadvantage of the LP. Limited partners are typically silent investors and tend to have limited control over the management of the LP. This gives the general partner great discretion, which could negatively impact the limited partners unless its authority is limited in the limited partnership agreement. A limited partner’s liability is limited to the amount of capital contributed to the LP, similar to a member in an LLC. An LLP, on the other hand, is very similar to an LP but limits the liability of all partners. Partnerships offer flexibility similar to LLCs in that their governance can be customized pursuant to a limited partnership agreement and they are subject to fewer formalities than corporations. Additionally, partnership

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