We provide guidance and assistance both with the formation of business entities and with purchases and sales of businesses. Many different factors must be considered in determining the most appropriate form of entity to use for a business, whether it be a partnership, a corporation or a limited liability company. And when a business is being sold, the buyer and seller often have completely different reasons for wanting the sale structured as an asset sale or a stock sale. We help work through the various considerations–tax and non-tax–and if appropriate will draft the needed documents.
[/vc_column][/vc_row]Choices in Business Forms:
Businesses may be arranged in a variety of forms in Montana. Chief among these are:
•Corporations
•Limited Partnerships
•Limited Liability Companies
Corporations: Corporations have limited liability. That is, in general, the owners of a corporation (referred to as stockholders) are liable to third parties only to the limited extent of their investment in the corporation. A third party with a claim against the corporation cannot in most instances collect against the stockholders. There are important exceptions to this general rule. Corporations have stockholders (the owners), directors (those responsible for the overall management of the corporation) and officers (those responsible for the day-to-day management). The officers usually consist of a President, Secretary, Treasurer and one or more Vice Presidents. Corporations are formed by filing Articles of Incorporation with the Montana Secretary of State. Four varieties of corporations are C corporations, S Corporations, Statutory Close Corporations and Professional Corporations.
C Corporations: The income from these corporations is taxed to the corporation. Distributions to the stockholders (“dividends”) are not deductible to the corporation, and are taxable to the stockholders.
S Corporations: These are corporations for which an election is filed with the Internal Revenue Service. Not all corporations can make this election, due to limitations on the kind and number of stockholders an S corporation can have. The income of these corporations is taxed to the stockholders rather than to the corporation, which in some situations is advantageous.
Statutory Close Corporations: These are corporations formed under special provisions of Montana law. These can elect to operate without a board of directors and without some of the formality required of other corporations. These can be taxed either as C corporations or as S corporations.
Professional Corporations: These are corporations for professionals, such as doctors, lawyers, engineers and CPA’s. Only licensed professionals can be stockholders in these corporations.
General Partnerships: In a partnership, each of the partners is entitled to participate in the management of the business, and each of the partners is liable for the obligations of the partnership, as well as the acts of the other partners. There is greater flexibility than with corporations in dividing profits among the owners of the business. A partnership can be formed without any formal action of the partners, although having a written partnership agreement is advisable. The income of the partnership is taxed directly to the partners.
Limited Partnerships: These consist of one or more general partners and one or more limited partners. The general partners have the same liability and same management rights as partners in a general partnership. The limited partners have limited liability similar to stockholders of a corporation, but are prohibited from participating in the management of the partnership.
Limited Liability Companies & Limited Liability Partnerships: These combine features of corporations and partnerships. These have the limited liability feature of corporations, but usually are taxed as partnerships (that is, the income is taxed directly to the owners, not the entity). The “members” can fully participate in management of the business. There are fewer restrictions on ownership and fewer requirements than with S Corporations.
[/vc_column][vc_column width=”1/2″]Outlines on Business Topics
Below are links to some outlines I have prepared on business-related topics (Caution: These have not been updated since they were written and consequently do not reflect any subsequent changes in the law):
- Limited Liability Companies (1993)
- Choosing the Appropriate Business Entity
- Drafting the Operating Agreement
- Selected 1999 Revisions to the Montana Limited Liability Company Act (1999)
- Choosing a Business Entity in Montana – Non-Tax Factors
- Taxation Issues Associated with the Formation and Operation of Limited Liability Companies and General and Limited Partnerships (General Practice CLE 1997)