CHOOSING THE RIGHT BUSINESS FORM
FOR YOUR NEW BUSINESS

By: Jeffrey A. Weldon

(as published in the Western Business Journal )

If you are considering starting a new business activity, you must choose the most appropriate business form for your enterprise.

Business Entities or Structures Available in Montana.

Traditionally, businesses were organized as sole proprietorships, partnerships, or corporations. Over the past several years, variations on those themes have developed nationwide and in Montana. For example, a Sole Proprietorship is a business owned and controlled by one owner (or by a husband and wife). You may form a sole proprietorship simply by doing business. However, you may want to file an Application for Registration of Assumed Business Name to reserve the business name. Keep in mind that a sole proprietorship:

• Offers no liability protection for the owner;
• Reports business profits and losses on the owner's individual income tax return.

A General Partnership is an association of two or more persons acting as co-owners of a business. You may enter into a partnership by action or by an oral or written agreement. In a partnership:

• There is no liability protection for the owners;
• Profits are taxable to the partners, even if the profits are not distributed; and
• An Assumed Business Name must be registered if the name is other than the names of the partners.

A Limited Partnership is a business in which certain owners are "limited partners" with certain limitations on liability. In a limited partnership:

• "General partners" share full management power and personal liability for the business;
• Limited partners cannot manage the business;
• A Certificate of Limited Partnership must be filed.

A Limited Liability Partnership is similar to a Limited Partnership, but all partners enjoy limited liability (in most cases, only to the extent of their investment in the partnership).

• Must register as an L.L.P;
• Is treated as a general partnership for tax purposes.

Corporations exist separate from their owners (called "shareholders") and have rights and liabilities apart from the owners. The shareholders elect a Board of Directors that makes policy decisions for the corporation. Officers manage the corporation's day-to-day business.

• Articles of Incorporation must be filed;
• Shareholders generally enjoy limited liability;
• Generally ownership can be freely transferred.

There are several types of corporations:

• "C" Corporations are generally larger and subject to taxation at the corporate level.
• "S" Corporation is a classification given by the IRS, which allows certain corporations to avoid double taxation because profits, losses, and other tax items of the corporation are "passed through" to the individual shareholders.
• Montana Close Corporations have relatively few shareholders and elect to operate more like a partnership.
• Professional Corporations can be formed by licensed professionals to organize under a corporate structure.
• *Nonprofit Corporations are established for the benefit of charitable, religious, educational, or scientific purposes and must apply to the IRS for tax-exempt status.

A Limited Liability Company provides the liability protection of a corporation, but gives the favorable tax treatment of partnerships.

• Relatively easy to form and meet the legal requirements;
• Must file Articles of Organization.

This list is not offered as a complete description of Montana's business entities. Before you select any structure for your business, contact a legal professional with experience with Montana's business laws for advice and assistance.