Business Organization Formation Documents
Sole Proprietorship. An individual who starts a business without taking any additional steps to create another legal entity is a Sole Proprietor. The individual owns the business and is liable for its debts and obligations. No formation document is required. Business licenses will be required.
General Partnership. When two or more individuals start a business without taking any additional steps to create another legal entity, the individuals have formed a General Partnership. The individuals own equal shares of the business and are each liable for its debts and obligations. No formal document is required. However, to avoid misunderstandings, these individuals should have a formal, written Partnership Agreement. The partnership is formed under and governed by the Utah Uniform Partnership Act, Utah Code 48-1d-101 et seq. Business licenses will be required.
Limited Partnership. To form a limited partnership, two or more individuals or entities must have a written limited partnership agreement. A Certificate of Limited Partnership must be filed with the Utah Secretary of State to consummate the entity's formation. The limited partnership is formed under and governed by the Utah Uniform Limited Partnership Act, Utah Code 48-2e-101 et seq. Business licenses will be required.
Limited Liability Company. To form a limited liability company (LLC), one or more individuals or entities must file a Certificate of Organization with the Utah Secretary of State. The organization and management of the LLC is set forth in a written operating agreement. Utah permits a single member LLC. For tax purposes, the IRS allows a single member LLC to file its income tax returns as if it were a sole proprietorship. The LLC is formed under and governed by the Utah Revised Uniform Limited Liability Company Act, Utah Code 48-3a-101 et seq. Business licenses will be required.
General Partnership Agreements, Limited Partnership Agreements and LLC Operating Agreements are very similar. They describe the rights of the owners, the liabilities of the owners, provide a decision making framework, provide for dispute resolution and contain restrictions of the transfer of ownership interests. The controlling acts complement the provisions of these agreements.
Corporations. A corporation may be owned by one or more individuals or entities. Business corporations have shareholders, officers and directors. The entity is created by filing Articles of Incorporation with the Utah Secretary of State. At an organizational meeting, the shareholders elect the Board of Directors and adopt the Bylaws of the corporation. The Bylaws describe how the corporation is to be operated, how directors are elected, what the officers will be and other matters. At its organizational meeting, the Board of Directors elects the officers of the corporation to run the day-to-day affairs of the business. The business conducted at these meetings must be set forth in written Minutes. A corporation with only a few owners will also have a Shareholders or Buy/Sell Agreement that restricts the ability of the shareholder to sell his or her shares and gives other shareholders the right to buy a selling shareholder's shares. Employment agreements for the key officers are usually required. A business corporation is formed under and governed by the Utah Revised Business Corporation Act, Utah Code 16-10a-101 et seq. Business licenses will be required.
“C” corporations and “S” corporations. “C” corporations and “S” corporations are not a special type of legal entity. The designation refers to the Internal Revenue Code and how the entities will be taxed by the IRS. “C” corporations are taxed on their income. Shareholders pay income tax on dividends paid by “C” corporations. “S” corporation are “pass through” entities. “S” corporations do not pay income taxes. Shareholders of “S” corporation pay taxes on their share of the income of the “S” corporation. Shareholders do not pay additional taxes on dividends received from “S” corporations. Partnerships and LLCs are also “pass through” entities unless they elect to be taxed as “C” corporations.