Limited partnerships have a general partner and at least one limited partner LP. A limited partner has no management authority and cannot generally bind the partnership. The GP retains all the management authority. Limited partners are usually financial backers who participate in the proceeds. The general partner has liability for conduct of the partnership, whereas each limited partner's liability is capped at the investment in the partnership. Limited partnerships are popular for project based businesses such as real estate development and investing.
The GP is typically a corporation which seeks out LPs to raise financing for a project. Unlike limited partnerships , limited liability partnerships do not have a separate general partner. Each partner has limited liability protection and there is no general partner with unlimited liability. The scope of limited liability varies widely from state to state. In this way, the LLP resembles an LLC , because the partners have limited liability and benefit from pass through tax treatment.
LLPs are often used in professional industries where malpractice by one partner might affect the entire partnership. The limited liability limited partnership LLLP is not widely used. LLLPs are also not available in every state. An LLLP is a sophisticated business entity designed primarily for investment purposes. It shares many of the characteristics of limited-partnerships , except that the general partner gets additional limited liability protections.
As the name implies, a sole proprietorship is a one person business entity. A sole proprietorship is not incorporated, avoids double taxation, and does not provide any liability protection. The assets of the owner are fully exposed.
For example, if a sole proprietor opens a coffee shop and get sued for an accident at the shop, then the owner's house, car, and bank accounts are available for the successful plaintiff. Notwithstanding this risk, sole proprietorships are quite common, because individuals want to avoid the cost and hassle of setting up and managing a separate legal entity. Business entity and legal entity are used interchangeably. A legal entity is distinct from a natural person.
A legal entity is recognized by a government. It can enter contracts in its own name. A legal entity can sue and be sued. It can maintain bank accounts and buy insurance. In short, a legal entity can usually conduct all the commercial activity that an individual can. To understand business entities better it is helpful to know about some core concepts:. A legal person is an artificial entity recognized by the law as a person. Natural persons might have restraints on their legal capacity.
For example, they only acquire their full citizenship rights at the age of majority. People declared legally incompetent also cannot enter contracts. Natural persons can own property individually or with others. They can enter contracts, pay taxes, and engage in political activity. When a government recognizes a legal entity, the government confers certain rights and responsibilities on that entity.
Legal entities might have restraints on their legal rights. In many countries, legal entities can own property, enter contracts, and pay taxes.
Legal entities may or may not have the right to engage in political activity in their own name. Notice that most of the business related rights are common to natural and legal persons. This is a foundational concept when forming a business. You are incorporating a legal entity which can do most of the things you can do. Legal entities do not appear out of thin air. Legal entities have owners. Individuals and other entities sometimes can own a legal entity. There are two aspects to ownership of legal entities.
An owner can have an economic interest and a management interest in a company. An economic interest means that an owner has the right to receive profits of the legal entity. This does not mean that the entity has an obligation to distribute profits to the owners in the form of dividends or distributions.
Rather, an economic interest means that the owner has a claim on the financial value of the enterprise. If the business is sold, for example, owners receive a pro rata share of the proceeds after creditors are paid. A pro rata share is a proportional share. The simplest example of a purely economic owner is someone who holds a share of stock in a publicly traded company.
If you own a single share of Google now trading as Alphabet, Inc. However, you have no right to appoint people to the Board of Directors of Alphabet. Although you can probably vote your share for a slate of directors. An owner who can make decisions on behalf of the legal entity has management rights. A management owner might exert that authority somewhat indirectly by participating on the Board of Directors, or by working as an officer in the company, such as the President, Chief Technology Officer, Managing Director, or similar title.
For most start ups, the founders have both economic and management interests. It is easy to muddle these roles. Keeping them distinct, however, can improve your financial success. Management refers to the people appointed by the owners to oversee the day-to-day operations of the business entity. The terminology for management can vary between corporations and other forms, like LLCs. For clarity and simplicity, we will use the corporate terms: directors and officers.
Owners appoint directors to represent them on the Board of Directors. In small and medium businesses, owners will usually just appoint themselves. At a minimum, directors will conduct annual meetings and appoint the officers. The organizational documents may also reserve certain decisions about the business to the directors instead of the officers. Common examples includes mergers and acquisions, sale of major assets, and bankruptcy. In a corporation, managers are typically called officers.
LLCs call them managers, but often change the title to officer in the organizational documents. The management roles created by the organizational documents by-laws are those positions that have authority to direct the daily business of the company and to enter contracts. Tax law applied to legal entities is complex. The choice of legal entity can have lasting consequences for taxes owed and paid by both the business entity itself and the owners.
While there are state and local tax implications, most discussions of entity taxation focuses on federal taxes. In broad strokes, entities are either disregarded for tax purposes or they pay entity level taxes. When an entity is disregarded for tax purposes, we say that it benefits from pass through tax status. Pass through entities do not pay taxes on their business income.
Instead, the owners pay income taxes on their share of the income from the business. The income is deemed to "pass through" to the owners and so does the tax obligation. Corporations in the United States are subject to double taxation. What does double taxation mean? Double taxation means that the entity pays taxes and then the owner pays taxes on dividends or distributions. The corporation, however, must pay taxes on its profits before distribution to shareholders.
Double taxation means that the shareholders who receive the distribution, must pay individual income taxes on the dividend. But there are lots of good reasons for the corporate form.
For example, maybe the growth strategy means that the company will retain profits and not distribute them. In that case double taxation is not a problem. Each of these is subject to different regulatory and tax regimes reflecting their organization and ownership.
The following are the main business entity types in Singapore:. A private limited company is a LLC in which the shares are held by less than 50 persons and are not available to general public. Most privately incorporated businesses in Singapore are registered as private limited companies. For example, our company, Hawksford Singapore Pte Ltd, is incorporated as a private limited company.
The shareholders of a private limited company can either be individuals or corporate entities or both. A private limited company is the most advanced, flexible, and scalable type of business form in Singapore.
For more detailed information about private limited companies, refer to Singapore company registration guide. A public limited company is a LLC that may offer shares to the general public. A public limited company must have at least 50 shareholders and is subject to significantly more stringent rules and regulations since they have the power to raise funds from the public.
A public limited company is usually listed on a stock exchange. Public limited companies are outside the scope of this article as they are meant for large businesses. A public company limited by guarantee is a type of business entity meant for non-profit purposes.
For more information, refer to setting up a non-profit entity in Singapore. Speak to our experts. We've guided thousands of entrepreneurs and international businesses make the right choices when setting up in Singapore.
Foreign companies wishing to setup a presence in Singapore, have the choice of setting up a branch office, subsidiary, or a representative office in Singapore. For more information about these options, refer to foreign company registration options in Singapore.
Sole Proprietorship A sole proprietorship is the simplest but the riskiest type of business form in Singapore. From a legal perspective, sole proprietorship is not a separately incorporated entity and therefore the owner and the business are one and the same. The owner personally owns all assets and liabilities of the business. There is no protection of personal assets from business risks and liabilities. Many entrepreneurs are usually unaware of this enormous financial risk.
We consider this a serious drawback and hence do not recommend sole proprietorship to inspiring entrepreneurs. Further details about sole proprietorship can be found in our Singapore sole proprietorship registration guide. The partnership type of business structure attempts to address the limited-expansion constraint faced by a sole proprietorship by allowing two or more people to establish and co-own a business.
There are key disadvantages of the Limited Partnership LP company. The two main disadvantages revolve around problems with raising capital and eventually dissolving the company. The LP doesn't give investors a lot of confidence when buying into the company, often requiring the primary director to offer a personal guarantee to lenders. All partners in an LP must agree to sell shares or dissolve the company, making it difficult to conduct business if one partner doesn't agree.
When a foreign company does business in the U. A limited company formed in Europe looking to expand business with a New York office will need to register with the New York secretary of state. Public limited companies PLCs may offer shares to the public to raise capital.
Those shares may trade on a stock exchange once a total share value threshold is met at least GBP 50, In the United States, a limited company is more commonly known as a corporation corp. Some states in the U. Such a designation depends on filing the correct paperwork; just adding the suffix to a company name does not provide any liability protection.
Limited companies in the U. Many countries differentiate between public and private limited companies. For example, in Germany, the Aktiengesellschaft AG designation is for public limited companies that can sell shares to the public while GmbH is for private limited companies that cannot issue shares. Because the number of shareholders is unlimited, liability is spread among multiple owners rather than just one. A shareholder loses only as much as he invested if the company becomes insolvent.
Shareholder A and Shareholder B own 50 shares each and paid in full for 25 shares each. A private limited company has greater tax advantages than a sole proprietorship , partnership, or similar organization. The company exists into perpetuity even if an owner sells or transfers his shares, securing jobs, and resources for the community. Shares are sold privately, restricting the amount of capital raised.
All shareholders must agree to sell or transfer shares to someone outside the company. If a loan is owed to the company at year-end, additional taxes apply. A director becomes personally liable if the company becomes insolvent and the director does not act in the best interest of the creditors. Internal Revenue Service. Accessed Sept. Business Essentials. International Markets. Investing Essentials. How To Start A Business.
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