Summary of Non-Tax factors for Various Legal Forms of Business Organization
Limited Liability
Sole Proprietorship
Limited to life of proprietor. Can sell
Life
or gift assets to another person
Legal Liability Unlimited
Acquisition of
Limited to what proprietor can raise
Capital
Management All decisions by proprietor
Amounts paid to owner are
considered partial distributions on
income. Can put spouse and children
on payroll if they perform actual
services for reasonable salary.
Salaries to
Children 18 and under not subject to
Owners
social security withholding or
unemployment taxes. Spouse also not
subject to unemployment taxes. This
offers substantial tax savings
benefits.
Taxes on
All income and expenses reported on
Income and
proprietor's individual tax return.
Expenses
Transfer of Easy because all assets owned by
Interest individual proprietor
General Partnership Limited Liability Company S Corporation C Corporation
Partnership1
Generally set up for a Generally set up for
specific agreed term; specific agreed term;
usually will be terminated usually will be terminated
A dissolve date must be
by death, withdrawal, by death, withdrawal, Perpetual life Perpetual life
stated at filing
insolvency or legal insolvency or legal
disability of a general disability of a general
partner partner
Unlimited Limited Limited Limited Limited
Limited in that there can only
be one class of stock
outstanding, but the
Limited to partner Limited to partner Limited to member May sell stock or bonds to the
corporation could sell bonds
contributions contributions contributions public
or more stock so long as that
would not be considered a
second class of stock
Usually managed by Much flexibility. Control Much flexibility. Control
Usually all general Governed by the
members, but can have usually exercised by officers usually exercised by officers
partners are active partnership agreement
separate managers and directors. and directors.
Owners may be employees. Owners may be employees.
Partners are not Partners are not Partners are not employees.
Salaries are taxable to them Salaries are taxable to them
employees. Amounts paid employees. Amounts paid Amounts paid are considered
and deductible by the and deductible by the
are considered partial are considered partial partial distributions of
corporation, subject to certain corporation, subject to certain
distributions of income. distributions of income. income.
limitations. limitations.
Divided among partners in Divided among partners in Divided among members in Passed directly through to the
Taxed separately at the
accordance with accordance with accordance with investment shareholders according to the
corporate level, again at the
investment or partnership investment or partnership or operating agreement and amount of stock held.
shareholder level if
agreement and reported on agreement and reported on reported on member's Generally no income tax paid
distributed as a dividend
partner's individual returns partner's individual returns individual returns by corporation.
Stock easy to transfer unless Stock easy to transfer unless
restricted by agreement, by restricted by agreement, by
Right to distributions easy Right to distributions easy
articles of incorporation or by articles of incorporation or by
to transfer, interest in to transfer, interest in Economic rights are
being statutory close being statutory close
assets and right to assets and right to transferable, management
corporation. In practice it is corporation. In practice it is
management cannot be management cannot be rights transferable with
normally better for the buyer normally better for the buyer
transferred without transferred without consent of other members
to purchase "assets only" to purchase "assets only"
consent of other partners consent of other partners
from a corporation to from a corporation to
eliminate any surprises of eliminate any surprises of
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Liquidation of At the discretion of the proprietor,
Business treated as sale of individual assets
A sole proprietorship may have
Pension or several different pension and profit
Profit-Sharing sharing plans to choose from .
Plan Examples: IRAs, simple plans or a
form of a 401K plan
Easiest and least cost to start.
Major Independence, flexibility, minimum
Advantages of record keeping, tax reporting and
legal requirements
Unlimited liability, limited life,
Major
limited management ability, limited
Disadvantages
investment potential3
Required upon withdrawal
of a partner unless
partnership agreement
permits business
continuation
Partners may participate
only in a self-employed
qualified plan, which must
be much more restrictive
in its coverage and
provisions; where no
qualified plan is
maintained, employees
may set up IRAs
Additional management
input and operational
responsibilities shared,
additional capital and
equity available,
flexibility, shared
overhead means increased
profits, limited liability
with RLLP2
Unlimited liability unless
RLLP, annual renewal
filing to keep RLLP,
limited life, relations
among partners can cause
problems, changes of
partners or partnership
agreement may be
difficult3
liability for the buyer. liability for the buyer.
Required upon withdrawal
Required upon withdrawal of
of a partner unless
a member unless partnership Normally a two-thirds vote of Normally a two-thirds vote of
partnership agreement
agreement permits business shareholders is required shareholders is required
permits business
continuation
continuation
Owners are employees and
Partners may participate
Partners may participate only can be included in a regular,
only in a self-employed
in a self-employed qualified qualified plan. However,
qualified plan, which must Owners are employees and
plan, which must be much limitation exists on amount of
be much more restrictive can be included in a regular,
more restrictive in its contribution for benefit of
in its coverage and qualified plan; where no
coverage and provisions; certain stockholder
provisions; where no qualified plan is maintained,
where no qualified plan is employees; where no
qualified plan is employees may set up IRAs
maintained, employees may qualified plan is maintained,
maintained, employees
set up IRAs employees may set up IRAs
may set up IRAs
(same as corporation.)
Additional management
input and operational
Same as partnership plus
responsibilities shared,
limited liability without Limited liability, profits taxed Limited liability, can offer
additional capital and
having to file annual once, direct pass through of fringe benefits to owners and
equity available,
documents, can be treated as income and expense to deduct them for income tax
flexibility, shared
any business form for income shareholder purposes
overhead means increased
tax purposes
profits, limited liability
with RLLP2
Unlimited liability unless
RLLP, annual renewal
Not every corporation can
filing to keep RLLP, Difficult to get assets out or
Relations among members qualify, cannot deduct fringe
limited life, relations to sell business without
can cause problems, changes benefits for owners or their
among partners can cause double tax, relations among
of members or operating families, relations among
problems, changes of shareholders or directors can
agreement may be difficult3 shareholders or directors can
partners or partnership cause problems3
cause problems3
agreement may be
difficult3

Source: Arthur Anderson and Kenner & Speck, LC

1 - Not to be confused with Limited Partnership
2 - RLLP = Registered Limited Liability Partnership
3 - In practice, liability is often not limited in forms of ownership other than a sole proprietorship or partnership because of loan guarantees, personal service corporations, etc. In these cases shareholders may be
held accountable for corporate liabilities. Sometimes these liabilities may be covered with affordable insurance. Therefore, sole proprietorships and partnerships can often be just as appropriate as other legal forms.
The best choice must be determined on a case-by-case basis, with personal tax situations often the key factor.

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Summary of Tax Implications

Sole Proprietor Partnership Limited Liability Company S Corporation C Corporation

Typically follows partnership
Year of the principal partner, typically rules, unless taxation as a
Tax Year Calendar a calendar year corporation is elected Calendar Calendar or Fiscal
Except in certain instances, Corporations are taxed on their
The default rule is taxation as a income flows through to each earnings with a 35% maximum rate
Income Income is included on the owner's Income flows through to each partnership, unless an election is shareholder's individual return, but (AMT of 20% may apply) and
Taxation individual return partner's individual return made to be taxed as a corporation the maximum rate is 39.6% shareholders are taxed on dividends
Members are subject to tax on Payments deemed to be income
Self General partners are subject to tax on income, except those qualifying subject to tax, but payments
Employment partnership income, but not usually so as limited partners, had the entity deemed to be dividends not subject Does not apply, other than to a
Tax Owner's net income is fully subject for limited partners been a limited partnership to tax shareholder's salary
If the owner actively participates,
losses are fully deductible against Typically partners may deduct active Shareholders may deduct losses to
ordinary income. the owner may partnerhsip losses against other Typically follows partnership the extent of their basis, but their Corporations may deduct losses or
Deductibility carry back or forward net operating income up to their basis, and passive rules, unless taxation as a proportionate debt share does not carry them back or forward to offset
of Losses losses. losses only against passive income corporation is elected increase their basis income in profitable years
BASIC FORMS OF DOING BUSINESS IN MOLDOVA
General Remarks
Under the Moldovan legislation, business (entrepreneurial) activity is the activity of production of goods, performance of works and provision of services carried
out independently by citizens and their associations on their own behalf, risk and responsibility for the purpose of obtaining a permanent source of income.

In Moldova , business activity may be practiced by:

any Moldovan citizen possessing full legal capacity;

any foreign citizen or stateless person;
a group of citizens and/or stateless persons (partners) considered to be a collective entrepreneur;
any enterprise.

Foreign citizens and stateless persons practicing business activity in Moldova benefit the same rights as Moldovan citizens.

In Moldova business activity should be practiced in the form of an enterprise. An enterprise is considered to be a business entity, which has its own brand name
and is established by an entrepreneur in the procedure stipulated by law.

An enterprise is entitled to practice any types of activity, with the exception of those prohibited by law. An enterprise may practice certain types of activity
determined by the legislation only after obtaining a license or permission from a competent authority. Certain activities may be carried out only by state
enterprises.

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Forms of Enterprises
Moldovan law stipulates that business activity may be practiced in any of the following business forms:

sole proprietorship;
general (full liability) partnership;
limited liability partnership;
joint stock company;
limited liability company;
production cooperative;
business cooperative;
lease enterprise;
state and municipal enterprise.

In enterprises which are established as a sole partnership, a full liability partnership and a limited liability partnership the property of the founders is not
separated from the property of the enterprise and the founders bear unlimited responsibility for the debts of the enterprise.

An enterprise is deemed to be created at the moment of its state registration in the procedure established by applicable law.

State Registration
Enterprises, their branches and representative offices (establishments) are registered by regional branch authorities of the Moldovan State Registration
Chamber (hereinafter Registration Chamber).

For the purpose of state registration of the enterprise, its founders shall submit to a regional branch authority of the Registration Chamber the documents
stipulated by current Moldovan legislation.

The Registration Chamber is obliged to check the legality of the submitted documents and no later than within 15 days from the receipt date thereof adopt a
decision on registration or on refusal of registration of an enterprise. A registered enterprise is assigned a registration number, which, being an identification
number of the enterprise, shall be indicated in the constituent documents, the registration certificate and the seal of the enterprise.

State and Municipal Enterprises

State and municipal enterprises are established with fully state- or municipality-owned capital and are treated as legal entities.

State enterprises are created and provided with assets by the Moldovan Government or authorized public authorities. Municipal enterprises are created and
provided with assets by local authorities.

State and municipal enterprises are prohibited from leasing or pledging the assets provided to the enterprise in use and possession. Further, such enterprises
may not participate with their assets in the operations of non-state entities or to make investments in another state.

Cooperatives
Current legislation provides for several types of cooperatives, the majority of which are production and business cooperatives.
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A production cooperative is considered to be an entity established by five or more natural persons for the purpose of practicing joint production and other
business activity based for the most part on personal work of its members and accumulation of contributions in the registered capital of the cooperative. A
production cooperative is considered to be a private enterprise created to generate profits.

A business cooperative is an entity created by at least five legal and/or natural persons practicing business activity to generate profits for members of the
cooperative. Depending on the types of practiced activity, applicable regulations provide for such types of business cooperatives as processing business
cooperatives, servicing and consulting business cooperatives, crediting business cooperatives, etc.

Sole Proprietorships
A sole proprietorship is formed on the basis of the property of an individual or his family. This form of doing business entails unlimited liability for sole
proprietors and deems the property of the business to be the owners' joint property.

Partnerships
General (Full Liability) Partnerships

A general (full liability) partnership is considered to be an entity created by no less than 2 and no more than 20 legal and/or natural persons, which joined their
assets for the purpose of practicing joint business activity under a common brand name. All partners of a general partnership bear unlimited joint and several
liability for the obligations of the partnership.

Limited Liability Partnerships

A limited liability partnership is an entity created by no less than 2 and no more than 20 legal and/or natural persons who joined their assets for the purpose of
practicing joint business activity under a common brand name. A limited liability partnership requires at least one full partner and one limited partner. Full
partners bear unlimited joint and several liability for the obligations of the partnership, while limited partners bear liability for the obligations of the partnership
only to the extent of the value of their contribution (share) in the registered capital of the partnership.

Limited Liability Companies

A limited liability company is considered to be a business entity with a registered capital of at least 300 minimal wages established by law as of the date of state
registration of the company (i.e. 5,400 Moldovan lei or about US $415) divided into shares (contributions), the value of which is determined by the constituent
documents of the company. The number of participants (natural and/or legal persons) in a limited liability company may not exceed 50. A limited liability
company may also be created by a single natural or legal person.

As a legal entity, a limited liability company bears liability for its obligations only to the extent of the value of its assets. The participants in a limited liability
company bear liability to the extent of the value of their contributions in the registered capital of the company. The participants which have not made their
contribution in full bear liability for the obligations of the company to the extent of the value of their contributions including the unpaid part of their
contribution.

Joint Stock Companies

A joint stock company is a business entity, whose registered capital is completely divided into shares of stock and whose obligations are secured by the assets
of the company.

The shareholders of a joint stock company may be natural and legal persons from Moldova and abroad, stateless persons as well as foreign states and
international organizations. A joint stock company may also be created by one legal or natural person only.

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Current legislation provides for two types of joint stock companies: open and closed joint stock companies.

A joint stock company is considered to be open if its shareholders have the power to alienate their shares to third persons without any restrictions. An open
joint stock company may exercise public placement and sale of its shares and other securities among the unlimited circle of persons. The law does not limit the
number of shareholders in an open joint stock company.

A joint stock company is considered to be closed if its shareholders or the company itself have a preferential right to purchase the shares being alienated by
shareholders of the company. A closed joint stock company may not carry out public placement and sale of its shares and other securities among the unlimited
circle of persons. A closed joint stock company shall have no more than 50 shareholders.

The registered capital of an open joint stock company shall constitute no less than 20 thousand Moldovan lei (about US $1,538), while the registered capital of
a closed joint stock company no less than 10 thousand Moldovan lei (about US $769).

Shareholders bear responsibility for the obligations of the joint stock company to the extent of the value of their shares.

Lease Enterprises
Lease enterprises are considered to be legal entities created by the personnel of state and municipal enterprises or their structural subdivisions for the purpose
of practicing joint business activity under a common brand name. Participants in a lease enterprise shall bear liability for the obligations of the company to the
extent of the value of their share in the assets of the enterprise.

Branches and Representative Offices (Establishments) of Enterprises

The Moldovan law permits enterprises to establish their branches and representative offices (establishments). Branches and representative offices
(establishments) are not considered to be legal entities, except for those created by foreign enterprises.

Enterprise shall bear liability for the obligations of their branches and representative offices (establishments), while the latter shall bear liability for the
obligations of the respective enterprise.

Branches and representative offices (establishments) must be indicated in the constituent documents of the enterprise.

Associations of Enterprises
Enterprises are entitled to establish associations in the form of alliances, unions and concerns. Associations of enterprises are considered to be legal entities.
The enterprises making part of an association preserve their independence and rights stipulated by applicable legislation.

Termination of Enterprises
Moldovan law provides that an enterprise is terminated by way of its reorganization or liquidation. An enterprise is reorganized by way of its merger,
acquisition, split-off, separation or transformation. An enterprise is liquidated by the decision of its founders or a judicial authority in cases stipulated by law.