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Hollander and Company LLC
5 Penn Plaza
19th Floor
New York, NY 10001
Telephone: (212) 576-1061
Facsimile: (212) 576-1078
Email: info@hollanderco.com
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CHOOSING A BUSINESS ENTITY
by Jonathan Kramer, C.P.A.

The form in which you conduct your business can have profound tax and legal liability implications. Summarized below are four commonly used business entities listing their primary advantages and disadvantages; Future articles will discuss the other two commonly used business entities (C Corp and S Corp) and other differences between all these forms of doing business. You can also read more about business plans, by clicking here.

Sole proprietorship - This form is limited to single owners. It is the simplest form of doing business, requires the least amount of paperwork to establish, and is the most economical to maintain. No special tax filings are required; however a detailed schedule of income and expenses needs to be included annually with your individual income tax return. This form of doing business provides no liability protection, i.e. you can be sued for product liability, personal injury or under any other legal basis for matters related to your business.

General Partnership - This form of business entity is similar to a sole proprietorship but is used when there is more than one business owner. As in a sole proprietorship, it does not afford its owners (partners) any legal protection. Forming a general partnership is straightforward. A partnership agreement should be executed defining the partners' rights and responsibilities and setting forth the economic relationship of the partners. A partnership return needs to be filed annually listing the business' income and expenses; each partner reports his share of the partnership net income on his individual income tax return. One of the major advantages of conducting business via a partnership is the flexibility afforded partners to allocate the partnership net income amongst them however they wish, provided that the allocation has "substantial economic effect". This often creates tax planning opportunities.

Limited Partnership - This form is identical to a general partnership except that there is at least one general partner and at least one limited partner. The limited partners are shielded from legal liability and from any claim asserted against the partnership. The general partner however is liable just as in a general partnership. This form of entity is most commonly used when a business venture requires investment capital. The investor receives an equity participation in the venture for his capital contribution; however his limited partner status guarantees him that he will not be at risk other than for the amount of capital he invested. Equally important, as in a general partnership the partnership net income can be allocated amongst the general and limited partners to maximize the tax advantages to the limited partners who funded the venture. This form of doing business requires significant paperwork and up-front costs including legal fees and publication costs.

Limited Liability Company - This newest form of doing business, adopted by most of the States, is similar to a limited partnership with one major exception. It does not require any of its owners (called members) to have legal liability. In this regard it is similar to a corporation which affords its owners (called shareholders) legal protection. Most advisors believe that this form of doing business is the "best of all worlds", providing the legal liability protection of a corporation while allowing the tax allocation flexibility of a partnership. This form of doing business has been embraced by the real estate industry as the entity of choice.

Editor's Note :  Jonathan Kramer, CPA, is a partner in the accounting firm of Shanholt, Glassman, Klein, Kramer & Co., CPA's, with offices at 488 Madison Avenue, New York, NY 10022.

Telephone (212) 644-9000; Facsimile (212) 752-4335

Mr. Kramer's firm has contributed this article in the public interest. It is neither intended as legal advice nor accounting advice. Nor is any professional relationship intended or established with the reader by virtue of browsing this article. Neither Mr. Kramer nor  Shanholt, Glassman, Klein, Kramer & Co. CPA's, are affiliated with Hollander and Company LLC. The information contained in the article is believed to be accurate but should not be relied on without independent advice of an appropriate professional.

 

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Learn more about our law practice and services in our About Us section.

We have been very fortunate to be represented by Hollander and Company LLC when it came time to trademark our company name. Their attention to detail was useful to us in helping clarify exactly what it was we were doing and what to expect. Also Jay Hollander was always sure to keep us up to date on what was happening. In this day when you hear horror stories about attorneys never following up it's good to know you've got someone on your team that you can trust.
Dan Cashman


Mr. Hollander consistently worked with my interests in mind, and often juggled his calendar around to accommodate meetings. He checks his email, voicemail, and responds during hours when most attorneys wouldn’t.
Jerry Revich

I would like to thank you personally for the excellnt Lan Management contract review, which you recently completed for us. It brought to light many issues that might have gone unnoticed if we had taken the path we pursued on a prior software management agreement. In today's Software and Services market it is imperative that the right Legal firm with the right experience review your contract before you sign on the dotted line. In closing I would like to say I really appreciated your efforts and attention to detail.
Michael A. Ritholz - Data Processing Manager - Borah, Goldstein, Altschuler, Schwartz & Nahins, P.C.

Your thoroughness and diligence in preparing for the closing made it a breeze for me. In addition, your kindness, respectful nature and sense of humor made it all enjoyable.
Laurie J. Harrison

Thank you so much for taking on my co-op purchase. As a first time buyer, there was no limit to how much about the process I did not understand. The patient guidance afforded to me by Hollander and Company LLC helped enormously. I am sincerely grateful for your diligence and smarts applied on my behalf. I will be more than happy to recommend your services to anyone looking for assistance in this area.
Andrew Maskin


I wanted to thank you and your firm for handling the sale of my property... I don't think the sale would have gone through without you and your firm's help.
Lisa Conway, Sales Agent, Halstead Property Company

The quality of your work and your personal and professional dedication really do make a difference.
David J. Pitkoff - CFO - Jason Maxwell, Ltd.

You provided great communication every step of the way to be sure that we were aware of what was going on.
Scott A. Anderson - IT Director -Hollander Home Fashions Corporation.

Your insight and expertise were invaluable in putting together the appropriate contracts and negotiating the optimum financing for our company.
Carl Bachmann - President - Veterans First Financial Services, Inc.

I knew nothing about Internet law, but after our first meeting I felt at ease as Jay explained it in a manner that any person could understand.
Gregory Edson - President - Cityopoly Inc.

The unique insight that you have been able to provide into the world of internet law has enabled us to position ourselves at the leading edge of the email follow-up and marketing industries.
Tracy R. Byrne - Vice Presidetlt, CMO - Electrisoft Corporation

Jay Hollander was great about explaining exactly what needed to be done in setting up our corporate structure and shareholder agreement, as well as how to craft contract language that would protect our interests in the future.
Nicolas Richards - President & CEO - MedAbiliti Software Inc.

Jay provides us with full legal services. He has represented us in complex bankruptcy issues, commercial office and store leasing and litigation.
David Ritter - Kensington House Company