S Corporation. Articles of Incorporation. organizations also for tax years beginning after 1997.

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1 Applicable Factor C S Sole Proprietor Partnership Liability Company I. Formation A. Method Articles of Incorporation Articles of Incorporation None Partnership agreement Articles of Organization B. Owner Eligibility 1. Number of Owners No limit 100; 75 for tax before 2005 One Two or more for general hip; one or more general and one or more limited for limited hip No limit 2. Type of Owners No limitation Only individuals trusts and estates for tax before 1998; certain taxexempt organizations also for tax after Individual No limitation No limitation 3. Affiliate No limitation May own 80% or more of C stock and 100% of qualified subchapter S subsidiary; No subsidiaries (except name holding) for tax before 1997 C. Capital Structure No limitation No limitation No limitation 1. Equity No limitations Only one class of stock No stock No limitations No limitations 2. Debt on debt/equity ratio Safe-harbor for debt

2 D. Status Determination 1. Election by Entity Required election s but state law filing but state law filing 2. Owner Consents None required Consent required None required None required None required E. Liability to 's to 's Unlimited General jointly and severally liable. generally limited to to member's II. Operational Phase A. Tax Year Any year permitted (limit for personal service corporation) Calendar year B. Tax on Income Corporate Owner Individual C. Elections Corporate Corporate Individual Owner Partnership Member Entity D. Allocation of Income/Deductions Not permitted (except through multiple equity structure) Not permitted (except through debt/equity structure) Permitted if substantial economic effect Permitted if substantial economic effect E. Character of Income/Deductions No flowthrough to to to F. Net Operating Losses No flowthrough to ) to ) ) G. Net Capital Losses No flowthrough, but three-year carryback and five-year carryforward to to H. Effect of Statutory corporate individual partner member

3 Limitations III. Compensation Arrangements A. Fringe Benefits Shareholderofficers qualify for benefits Certain benefits includible in 2% + 's individuals participation for participation for members B. Retirement Benefits Shareholderofficers included in qualified plans Certain on employees; ESOPs available for tax years beginning after 1997 (although certain special tax breaks available to C corporations will not be available). individuals Certain Certain members C. Reasonable Compensation Limits Applicable to employees Applicable to employees May be applicable in a family hip context where is a material factor May be applicable in a family LLC context where is a material factor IV. Transactions with Owners A. Distribution of Cash Dividends to extent of earnings and profits until previously taxed fully recovered except in calculation of except in calculation of B. Distribution of Property Dividend ; gain recognition to distributing Gain recognition to distributing No gain or loss to but may recognize gain on certain appreciated No gain or loss to but members may recognize gain on certain depreciated C. Purchase of Owner's Interest 1. Partial Interest Probable Tax-free; but gain for proceeds in excess of tax

4 2. Entire Interest, with exceptions after recovered Cannot sell interest; sale of business is viewed as a sale of each except for 736 payments except for 736 payments D. Property Sales to Entity by Owner Possible or contribution to as distribution or contribution E. Property Sales to Owner by Entity Possible or contribution to as distribution or contribution V. Termination of Entity or Owner Interest A. Sale of Interest by Owner to Third Person ; no effect on ; no effect on Cannot sell interest; sale of business is viewed as a sale of each, 751 categorization, 751 categorization B. Death of Owner Estate continues as : death (or alternate valuation date) is for shares; no effect on affects C. Liquidation Distributions Estate continues as : death (or alternate valuation date) is for shares; no effect on Estate takes over business Estate as partner subject to agreement, death is for interest Estate as member agreement, death is for interest 1. Effect to Distributor Gain recognition if appreciated distributed; no increase in for gain Gain recognition if appreciated distributed; increase in for gain No gain recognition on No gain recognition on

5 2. Effect to Recipient on excess value received over on excess value received over Substituted in equal to in hip interest; gain may be recognized depending on distributed Substituted in equal to in LLC interest; gain may be recognized depending on distributed D. Entity Reorganizations Tax-free to if qualifying under reorganiza-tion provisions ( 354 & 368) Tax-free to if qualifying under reorganiza-tion provisions ( 354 & 368) No taxability on merger of hip No taxability on merger of LLC E. Carryover of Tax Attributes Carryover of tax attributes to successor if tax-free reorganization Carryover of tax attributes to successor if tax-free reorganization