Business Entities

Limited Liability Company (LLC)

The LLC is a hybrid business structure that is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. A popular choice for sole proprietors who are looking to incorporate simply to protect personal assets or secure additional loans. The LLC is now a recognized business structure in all 50 states including the District of Columbia. LLC's are gaining popularity with the small business owners because they combine the advantages of a corporation with the tax advantages and management flexibility of a partnership. LLC's can be sole proprietorships, partnerships or S or C Corporations.

What are the main advtanges of forming an LLC?

• Owners of an LLC have limited liability for business debts.
• For tax purposes, the allocation of profit and loss of an LLC need not be proportional to ownership interests.
• With an LLC, there is no double taxation threat since the LLC is not a separate taxable entity.
• You do not need to be a US citizen to own or invest in an LLC.

General Partnerships

General partnerships are formed when two or more entities/persons join together to carry on a trade or business. A partnership may be established by an oral or written agreement, or it can be deemed to exist when there is a perceived intention to be partners, or co-workers of a business, to share profits or losses.

What are the main advantages of forming a General Partnership?

• Partnerships are tax-reporting entities rather than tax-paying entities. Partnership income, gains, losses, and deductions are allocated to partners and included in the partners individual tax return.
• Partnerships generally distribute property to partners without gain recognition.
• Partnerships generally require less adminstrative burdens than corporations.
• Partnerships can liquidate with little or no tax costs.

S Corporation

A subchapter "S" Corporation, also called an S Corporation, is a corporation that once incorporated, elects a special tax status. The Subchapter S tax election enables the shareholder to pass through earnings and profits directly to their personal tax return. If the corporation has a profit, the shareholder, if working for the company, must pay themselves wages that meet the standards of "reasonable compensation."

What are the main advtanges of forming a S Corporation?

• An S Corporation is said to have less risk from government audits as a coroporation (as opposed to sole proprietor or LLC)
• Owners of an S Corporation have limited personal liability for business debts
• With an S Corporation, owners can use corporate losses to offset income from other states.
• Owners of an S Corporation can save on employment taxes by taking distributions instead of salary.
• With an S Corporation, there is no double taxation threat because the corporation is not a separate taxable entity.

C Corporation

Corporations are characterized as artifical persons created for the purpose of conducting business. Corporations operating in the basic corporate form (C Corporation) are subject to income tax in accordance with corporate income tax rules. C corporation income may be taxed twice: once when the corporation files its income tax return and again when stockholders file their individual returns and report distributions of the corporation's income as dividends.

What are the main advantages of forming a C Corporation?

• Limited liability - the liability of owners of a corporation for its debt is limited to the assets of the corporation.
• Continuity of Life - the corporation continues indefinitely, even after the death of the stockholder.
• Centralized Management - Stockholders elect a board of directors, which is ultimately responsible for the management of the company.
• Ease in Transferring Ownership - Ownership of a corporation is evidenced by shares of stock, which are generally easier to sell than an interest in non-corporate entity.