Quite some time ago I wrote an article about an email that I had received. It was a fairly interesting email as it was quite detailed about my life, my goals, and my ideas. The knowledge that this person had about me was so complete that it was almost eerie.

There was quite a bit of lag time in the email. It took quite a bit of time from when it was actually sent until I received it. It was a little over six months before it showed up in my inbox. In this world that is completely absurd. Emails used to take a minute or two, but now they are nearly instant.

In this email, the writer wanted to make sure that I was staying on track. I was held accountable for every idea and project of mine. If it wasn’t done, why not? If I wasn’t working on it, why not? Some of the ideas were ones that I had forgotten about and abandoned long ago, even if they were good ideas.

If you haven’t figured it out yet (or don’t remember from the last post about this!!), the email was from myself. I used a program that allows you to write emails and send them off to yourself at a future date.

Even if you leave Aridni and forget all about it within the next week and then go check out the site and forget all about it. A letter written to yourself and from yourself will certainly help you put your life into prospective.

Before you leave your computer and forget this whole article, go check out futureme.org and write your future self a letter.

So you have decided to take the plunge into the business world in an effort to make millions, tens of millions, or just tens of dollars. How much thought have you put into structuring your business? Well, the good news is that you really shouldn’t have to sweat about it TOO much. Once you know the issues involved in the different types of entities, your decisions should be quite a bit easier.

I have written a couple articles about the different types of entities on their own and would like to present them to you in relation to the other options. These are the standard business entity types in the United States, and though many other countries have similar types of business entities, I would highly suggest that you investigate all of your options.

Sole Proprietorship

• Pro: Easy to create
• Pro: Freedom from many regulations
• Pro: Pass Through Entity
• Con: Unlimited Liability
• Con: Hiring People can be tricky

Partnership

• Pro: Easy to create
• Pro: Freedom from many regulations (although not as many as Sole Proprietorship)
• Pro: Pass Through Entity
• Con: Unlimited Liability for all partners
• Con: Possible politics and issues between members

Corporation

• Pro: Limited Liability
• Pro: Well known entity type
• Con: Difficult to set up
• Con: Double Taxation (not pass through)
• Con: Many Regulations to do business
• Con: Difficult to operate

Limited Liability Partnership (LLP)

• Pro: Fairly easy to establish
• Pro: Limited Liability
• Pro: Pass through entity
• Con: Must have at least two partners at all times
• Con: Transferring interests is difficult

Limited Liability Company (LLC)

• Pro: Fairly easy to establish
• Pro: Limited Liability
• Pro: Pass through entity
• Pro: Freedom of operation
• Pro: One person can own 100% interest
• Con: Hard to issue stock for an IPO

The last two on the list are the newest entity types established to encourage more people to start businesses and other investment projects. My favorite type of entity is the LLC, and that is because of the protection it offers while still giving you an ample amount of freedom. Since it is so new, it doesn’t quite command the amount of respect or get the amount of understanding that I think it deserves.

That wraps up my post here. Keep in mind these are generalizations about the entity types and there are a few other things to consider. So talk to your lawyer or law student or somebody who knows these things better than you to make sure you look into all the issues you might possibly face. There are a couple more things as well, such as professional LLPs and LLCs (often written as PLLP or PLLC), as well as options on the corporation type (C-Corp, S-Corp, Non-profit) that you might want to consider.

Today I meet a young man who has $100,000 labor contracts to put siding on Hilton hotels. He hires staff, lines up insurance, establishes employee housing for out-of-town projects, and runs a successful LLC. He’s the cheapest, fastest, and most efficient sider around here.

Oh– this young man cannot read.

So isn’t it funny how many “I can’ts” we throw at business ideas? How many dreams have you thrown away because of obstacles? Yeah, making the details work is tough. But is it tougher than being unable to read?

Often the most talented and skillful people–probably you–end up working for someone who seems dumber than a stick because of hesitations. We’re afraid. Working for someone else is safer and easier. A lot easier. How many of your skills are being utilized, even maximized? Probably not many. The selling points that attracted your employers probably aren’t even used that much.

My co-worker is a wiz with numbers. Her fingers can roll over a 10-key like it’s on fire, and her accounting skills are something to boot for. But the boss’s wife does all of the real number work. My co-worker’s knock-down number skills are used for nothing but phone number memorization. “Hey Jill, what’s so-and-so’s number?” “Jill, give me the address for so-and-so.”

Of course, my co-worker feels fine with little responsibility. But without something significant at work, do you ever feel like your mind is rotting? Like your brain is melting onto the monitor in front of you?

The way I see it, if you want to make a million bucks, you have to be willing to put a million bucks worth of work into your efforts. You can spend the rest of your life working beside my co-worker, taking no risks, saving penny by penny, and maybe hitting a million bucks when you’re, what. 80 years old?

Or you can charge ahead. Work like mad for a few years. Dig and dig at your endeavors. So you have a weakness. Find a way to work around it. The sider’s wife reads his contracts aloud and shows him where to sign documents. I guess the way he sees it is this:

Either he can work for someone else as a low-paid sider for the rest of life, unable to provide his wife and future family with much of anything. Or he can work like mad with his own company. He doesn’t need to read to put siding up.

If you have read the last three posts about the advantages and disadvantages of certain entity types (So far I’ve covered Sole Proprietorship, Partnerships, and a bit of Corporations) then you might be kind of torn.

The limited liability that comes with a corporation could be very nice. But the double taxation doesn’t sound like a good time at all! Then at the same time there are the Sole Proprietors and Partnerships who boast the various tax benefits. The downside there is that you have so much more to lose if something goes wrong.

Fortunately the States of Texas and Wyoming have given us alternatives in the 80’s and 90’s. I’m sure that you have heard of them many times before. They are the LLP and the LLC. Limited Liability Partnerships and Limited Liability Companies.

The Limited Liability Partnership has the bonuses of a regular partnership, only you are now covered legally with limited liability for all of the partners. A downside is that it is still a partnership, so there must be at least two people involved.

It’s rather curious that when Texas created LLPs they didn’t also create some sort of Limited Liability Sole Proprietor. My guess would be that it is due to the numerous oil partnerships that required multiple investors.

Not much later, the state of Wyoming came out with the idea for the Limited Liability Company, also know as the LLC. Although it is often mistakenly called a Limited Liability Corporation, it is important to know why it is not one.

Corporations are already entities with limited liability. So saying limited liability corporation would be like saying a limited liability limited liability entity, which is redundantly redundant.

A second big difference between the two entities is that you can organize, control, and run the company however you want. You could make twenty types of interests with twenty permission types if you wanted to do something like that. Of course I wouldn’t advise creating so many types of membership rights, because it would be something that’s fairly hard to change. Especially so if you don’t specify in your membership agreement. What if you want to convert to a corporation later so you can issue out stock. Nasdaq doesn’t want to deal with so many share types, and neither do the other exchanges!

What I’m really getting at here is freedom. With an LLC you have freedom to run your company any way that you would like. By no means should you go nuts and make all kinds of crazy bylaws that your going to be stuck with, but of course you can run your company however you want as long as the shareholders (members) agree to it.

When it comes to taxation you have choices with an LLC or an LLP. You can be taxed as a regular partnership giving you and your partners the benefits being a pass through entity. If you decided to, you could subject yourself to double taxation and pay taxes like a corporation. It might be worth it to do so depending on the situation and the particular state’s laws. Ask your CPA about it.

Like every entity type there are benefits and drawbacks to choosing to operate as an LLC or an LLP and in short, here the are.

Pros for both types:
Limited Liability
Pass Through (if wanted)
Freedom in Organization and Operation (through the operating agreement)

Cons for the two types
Not easy to trade shares in the open market or have an IPO
Freedom in Organization and Operation (with less defined standards for opperation from government and other agencies)

Cons for LLCs only
High taxes in some states to start and operate

Cons for LLPs only
Requires at least two people at all times
Some states restrict to professionals only

Pros for LLCs only
Only one person is needed to start

Pros for LLPs only
You can put LLP on your business card!

I hope you’ve learned a thing or two about setting up shop as a Limited Liability Partnership or as my entity of choice, a Limited Liability Company!