In establishing a legally recognized business entity, one must consider:

1. 1. The need to continue the business even after the death of its creator
2. 2. Ownership implications, i.e. whether the creator is willing to allow others to have an ownership %.
3. 3. Control implications, i.e., whether the creator is willing to allow others to participate in control.
4. 4. Taxation: Is there a need to rely upon "safe harbors" while still considering 1-3, above?
5. 5. Liability: How can I minimize liability?

Special Ventures:  Two or more persons coming together to do business as owners, but for a limited time or purpose. It is the same as a general partnership, but its purpose or life is limited.   All owners/operators have an equal right to participation, and all are joint and severally liable for the obligations of the business.  It is also a dependent entity, meaning, when any owner dies, the venture dies. No separate taxible entity, the owners pays taxes on the income reported on schedule ER.

General Partnership:  Two or more persons coming together to do business as owners.  A dependent entity, meaning that the life of the partnership is dependent upon the life of the owners.  No formal agreement is required, however, a Partnership Agreement should be created to provide for the rights and liabilities of the partners.  As a part of the agreement, a buy-sell agreement should be implemented to handle the death, withdrawal, resignation or expulsion of a partner.  Partners are jointly and severally liable for the obligations of the business.  No separate taxible entity, the owner pays taxes on the income reported on schedule ER.

Limited Partnership:  A "creature of statute," meaning that the entity is not recognized unless its creation has specifically complied with the statutes governing it.  One or more limited partner and one or more general partners coing together to do business as owners.  The general partner is given the samepowers as a partner in a general partnership; as is that partner imposed with the same liability.  The limited partner has no power to operate the business, if he or she does, he or she will be treated as a general partner.  Limited partners have a limited liability, meaning that they are not liable for the obligations of the limited partnership beyond their investment.  Normally taxed a a partnership.  The interest of a limited partnership may be transferrable, meaning that the entity may be considered an independent entity.  Also, only if the general partner dies or goes out of existence is there a termination, unless there is more than one general partner.

Limited Liability Company:  In Ohio, one or more persons creating, according to statute, this business entity.  It is also a creature of statute, and an independent entity.  If there are more than one person creating the entity, the owners are also the operators, but they may defer the right of operation to a board of managers.  Unless otherwise declared, it is taxed as a partnership.  The operators are not liable as owners, for obligations of the company.  As operators, their only liability is based on exceeding the scope of authority imposed or granted to them.  If they act within the express or implied powers created, they are not individually liable for obligations of the company.  Ownership is freely transferrable, unless restricted by the instrument creating it.

Corporation:  An independent entity, existing apart from the life of its owners.  A creature of statute of a state, and required to show compliance with statute in order for owners, promoters or incorporators to escape individual liability.  In consideration for owners having a liability limited to their investment, they forfeit all right of operation,  as owner, in  deference to the managers, i.e. Directors, and those whom the directors delegate authority to, i.e. officers and other employees.  Treated as a separate entity for tax purposes, which means that the corporation pays tax on its after expense profit, and, when these profits are distributed to the owners, in the form as dividends, the owners pay tax on such distribution.  A very formal entity, requiring the operators to formalize their activity.

Rights of owners:  In general owners are entitled to direct the business.  However, as the entity becomes more formal, and as the owners have less participation in the actual operation of the business,  the owners' right to direct is replaced with market considerations.  In effect, when owners view their ownership interest more as an investment, they defer operational considerations to the managers, and only look at the return on their investment.

In a corporation, shareholders (owners) have the following rights:

1. 1.  Vote, assuming they own stock which possesses this right.  Not all stock does.
2. 2.  Receive a lawfully declared and payable dividend. Dividends are only payable out of "surplus," defined differently by the various states.  A dividend unlawfully paid is recoverable by the corporation.
3. 3.  Inspect the records of the corporation, i.e. those records required to be kept in the ordinary course of business, and not subject to exclusion because of privacy considerations.
4. 4. In addition to the above, a shareholder is entitled to protect their interest by bringing a "direct" or a "derivative" lawsuit.  A direct lawsuit is an action brought by the shareholder against the corporation, alleging that the corporation, or its officers have prevented the shareholder from exercising one of the first three rights above.  A derivative lawsuit is an action brought by the shareholder, on behalf of the corporation, alleging that some third party is wronging the corporation.  The remedy for a direct lawsuit is enforcement of the shareholder's rights; for a derivative lawsuit, make the corporation "whole" again.  Only if the shareholder has a "vested interest" in the corporation will he or she resort to this remedy,  seeking, in the alternative the market remedy.
5. 5.  Right of appraisal and buy-out of a dissenting shareholder.  If the corporation decides to sell all, or substantially all of its assets, makes a substantial change to its articles of incorporations, seeks to make a change to a class of stock which is adverse to the owners thereof, or seeks a statutory merger or consolidation, shareholders must approve any of those proposed activities.  Should a shareholder oppose such action, they must vote their stock against such action.  They are then considered a dissenting shareholder.  If they then desire, they make a demand upon the corporation to purchase their stock at the price they, i.e. the shareholder, states.  If the corporation agrees to do so, at least the shareholder receives what they believe to be a fair price.  If the corporation refuses to do so, or fails to respond, the shareholder then instituted suit in court, asking the court to appoint appraisers to value the stock and then compel the corporation to purchase the stock at the appraised price.  This is expensive and time consuming, and normally a shareholder will resort to the market remedy.

    In a corporation, the Board of Directors are the operators of the business, delegating authority to officers and others, yet having ultimate responsibility for the action of the corporation.  Directors have the duties of fidelity, reasonable care (which includes exercising sound business judgment), accounting and notification.  Directors have these duties to the corporations, which prevents them from deriving a personal gain, or allowing others to derive a personal gain without the knowledge by and approval of the corporation.  Any director who breaches this duty is individually liable.

Regulation of Securities:  Basically the Securities Exchange Acts of 1933 and 1934 regulate the registration of a security for trading, and the actual trading of such security.  Any investment, the return of which is dependent upon the efforts of another, is generally required to be registered in order to trade it on a national stock exchange.  Even if not required to be registered for interstate trading, state laws will require it to be registered with the state if the issuer desires to offer if for sale to the general public.

Rule 10-b-5 of the SEC, prevents any person from making a false representation of a material fact, or omitting to make a material fact known, in the trading of a security required to be registered.  Insider trading laws have solidified this area of the law by imposing upon the actor the risk that, if they possess material non-public information (inside information) and are charged with a "fiduciary duty" not to disclose nor use such information until it is disclosed to the public, they cannot trade on such information without being liable for criminal and civil penalties.  Scienter, that is an intent to trade on the fraud or non-disclosure is an element of this offense, which may have to be shown through the use of circumstantial evidence.

Rule 16 b of the SEC, prevents a director, officer, or owner of 10 percent of stock in a company from selling and then repurchasing, or buying and then selling stock in his or her corporation, based on inside information, within six months time from the other.  The profits made or the losses saved are recoverable by the corporation.