A joint venture (also known as a “JV”) is a specialized type of business formation used particularly in the construction industry.  Partnership law generally applies to joint ventures.  In a joint venture, two or more companies combine resources and expertise to construct a major project.
 
Some advantages and disadvantages of forming a joint venture include:
 
      Advantages

• Enhances the ability of each enterprise to perform on a project where the magnitude is such that neither entity can perform utilizing its own existing resources
• Limited to a single project; remains in effect until its purpose is accomplished or until it has been determined that it’s impossible to accomplish
• Not taxable entities, therefore, co-venturers are liable for income taxes only in separate and individual capacities
• Profits and losses from the project are shared equally

 
      Disadvantages

• Co-venturer holding or acquiring title to property for the joint venture is only a trustee even if it was paid for with their own funds
• Negligence of one joint venturer acting on behalf of the joint venture is imputed to the other joint venturer
• Contract or agreement to form a joint venture need not be expressed in a formal instrument
• Death or termination of a co-venturer terminates the joint venture

 
To form a joint venture, all venturers must participate in drafting a joint venture agreement.  This agreement is considered a legal document and should be reviewed by an attorney before submitting it as final.

Excerpted from, "The Start of Something BIG: Your Ultimate Guide to Writing a Dynamic Business Plan."

More commonly known as an LLC, the limited liability company may soon take the place of the S Corporation and the limited partnership.  It operates much like a partnership, but offers the benefits of limited liability like a corporation.
 
Some advantages and disadvantages of forming a limited liability company include:
 
      Advantages

• Owners are generally not liable for debts of the LLC
• Unless treated like a corporation, owners report income on their individual federal income tax returns
  
• Can engage in any type of business, including professional, with only a few exceptions

 
      Disadvantages

• Not all states have adopted the LLC, so protection would not be available in those states
• Must have at least two owners, except for in a few states

Excerpted from, "The Start of Something BIG: Your Ultimate Guide to Writing a Dynamic Business Plan."

The limited liability partnership (also known as an LLP) is a business formation formed with one or more general partners AND one or more limited partners.  This formation is most appropriate for businesses seeking large capital contributions.  The general partners manage the day-to-day operations of the partnership; the limited partners contribute capital, have limited liability for the obligations, but have no right to manage the day-to-day operations.  However, if they do manage, they’ll lose their right to limited liability. 
 
Some advantages and disadvantages of forming a limited liability partnership include:
 
Advantages

• Liability of limited partners is limited to capital contributions
• Have the ability to attract large amounts of capital
• Losses from the business are deducted from individual federal income tax returns without limits
• Can be created by default, however, a partnership agreement is necessary
• Can continue after the death or withdrawal of a limited partner
• General partner can also be a limited partner at the same time

 
Disadvantages

• General partners have unlimited liability
• General partners are liable for criminal acts of other partners if they know about them or are a part of them
• Estate of any limited partner is liable for all liabilities of the limited partner
• Dissolved upon the death or withdrawal of a general partner unless there is an agreement that states otherwise

Excerpted from, "The Start of Something BIG: Your Ultimate Guide to Writing a Dynamic Business Plan."

This is a business formation in which two or more competent persons combine their skills, property, other assets or labor to conduct business.  While general partnerships aren’t considered legal entities, the Uniform Partnership Act provides for some degree of legal uniformity.  Some advantages and disadvantages of forming a general partnership include:
 
Advantages

• Business can be conducted by agreement or by default
• Management decisions are shared equally
• Partners can agree to add a purchaser of interest as a partner
• All profits are divided among the partners
• Income is reported on individual federal income tax returns

 
Disadvantages

• Not a legal entity
• All partners are personally liable for all obligations of the business
• Any partner can be held liable for more than their share
• Unless otherwise stated in an agreement, the business ceases to exist upon death or termination of any partner
• Business ceases to exist upon bankruptcy of any partner regardless of the agreement

 
To form a partnership of any kind, it is imperative that and attorney is consulted to assist in drawing up all the agreements to protect the interest of all partners.  Second, there must be a fictitious business name statement in the county clerk or county recorder’s office of the primary place of business.


Excerpted from, "The Start of Something BIG: Your Ultimate Guide to Writing a Dynamic Business Plan."

Also known as an “S” Corporation, the Subchapter S Corporation is treated like a partnership for federal purposes.  This legal form of business can only have up to 100 shareholders and must have a board of directors.  Income in the S corp can pass directly to shareholders without double taxation and with the benefits that come with being a corporation, however, with only one class of stock, asset class (as defined by Wikipedia).

Some advantages and disadvantages of forming a Subchapter S Corporation include:
 
      Advantages

• A legal entity, therefore, shareholders’ liability is limited to their contributions

• Has the ability to raise large sums of capital
• Shareholders report income on their individual income tax returns
• Remains unaffected upon death or termination of any shareholder

 
      Disadvantages

• Expensive to form
• Ownership difficult to transfer because of restrictions on who and how many shareholders there may be

 

Excerpted from, "The Start of Something BIG: Your Ultimate Guide to Writing a Dynamic Business Plan."

Close and closely-held corporations have few shareholders whose shares aren’t available to the general public.  This type of corporation is generally a smaller type of corporation.  While they’re subject to the same rules under state corporate law, they’re given a greater degree of latitude.  Some advantages and disadvantages of forming a close or closely-held corporation include:
 
Advantages

• Precise form and content of the articles of incorporation are open ended, therefore, there are no set guidelines as to how the business is managed or financed
• Controlling shareholders are the only managers of the business
• Not necessary to elect a board of directors
• Can operate as though it were a partnership

 
Disadvantages

• Number of shareholders cannot exceed 35
• Cannot operate without the cooperation of all shareholders

 


Excerpted from, "The Start of Something BIG: Your Ultimate Guide to Writing a Dynamic Business Plan."

A corporation is the second most common form of business.  It is formed as either a for-profit or a not-for-profit entity.  Owners (referred to as shareholders in a for-profit entity) elect a board of directors who are responsible for the management of the business.  The board of directors appoints officers to manage the day-to-day operations.
 
With a corporation, the ownership and management are separate.  Shareholders don’t necessarily manage, and managers, directors or officers aren’t necessarily shareholders.  Some advantages and disadvantages of forming a corporation include:
 
Advantages

• Is a legal entity
• Shareholders have limited liability for the corporation’s debts
• Can survive after the death or withdrawal of its owners, partners or shareholders

 
Disadvantages

• More expensive to start than a general partnership or sole proprietorship
• Subject to both state and federal taxes

 
To form a corporation of any kind, an application must be filed and approved with the Secretary of State’s office in your state.  Prior to the filing, it would be wise to consult with an attorney to review the application, articles of incorporation and by-laws. 

Excerpted from, "The Start of Something BIG: Your Ultimate Guide to Writing a Dynamic Business Plan."