FAQs

Just a few...

FAQs

1. What is a “limited liability company”?
A “limited liability company” (“LLC” for short) is a business entity created by one or more owners (“members” in LLC parlance) under state laws to conduct one or more lawful businesses. An LLC with only one owner is referred to as a “single-member LLC” and an LLC with more than one member is referred to as a “multiple-member LLC.”  Every state now permits the formation of LLC’s. The laws are generally similar from state to state but there are variances. An LLC is a separate legal entity from its owners/members and its owners/members are generally not personally liable for the debts of the LLC so long as its formalities are followed. An LLC is governed by its member(s) or by its member-manager(s) in accordance with the terms of its Articles of Organization and its Operating Agreement (or applicable state laws if there is no Operating Agreement). LLC’s are created by filing its Articles of Organization with the applicable state. Annual reports must be filed each year (usually by April 1 or May 1) to avoid late fees and eventual administrative dissolution. Generally, an LLC must register as a “foreign entity” if it conducts business in states other than its state of organization. See the questions below for a discussion of the tax considerations applicable to LLC’s.

2. What do I need to start an LLC?
We have prepared an all-inclusive package of services with no hidden fees to get you started. We will prepare and file your Articles of Organization, prepare and obtain your federal employer identification number, prepare and file your Subchapter S election if needed, and prepare your organizational minutes and bank account resolution. This is everything you need to get started. Additional “bells and whistles” can be added by you at any time.

3. How are LLC's taxed?
To understand how LLC’s are taxed, you must understand the different tax treatments of corporations and partnerships. The earnings of corporations are subject to “double taxation” without a Subchapter S election. Because a corporation is a separate taxable entity, its earnings are subject to tax. When the remaining earnings are distributed to its shareholders, those distributions are subject to tax a second time. Partnerships on the other hand are “pass-through entities.”  Partnership earnings are “passed-through” without tax at the partnership level so that such earnings are taxed only once at the individual partner level.  This difference between corporations and partnerships was eventually minimized by the “Subchapter S” election that was made available to certain “smaller corporations” and their shareholders. Corporations electing “Subchapter S” treatment were essentially treated as partnerships and their corporate earnings were “passed through”’ to be taxed only at the individual shareholder level. Over time, the restrictions applicable for corporations to achieve “Subchapter S” treatment were seen as too restrictive and the “limited liability company” was created to broaden the availability and flexibility of “pass-through” tax treatment. LLC’s that elect “disregarded entity” or “Subchapter S” treatment “pass-through" their earnings without tax and such earnings are taxed only once at the individual owner level.

4. What are the “tax considerations” for a “single-member LLC”?
LLC’s are a unique creature under the federal income tax code and may be treated differently for tax purposes based upon certain factors and elections. A “single member LLC” will be treated as a “disregarded entity” unless its member files an election to be treated as a corporation (either as a Subchapter S or Subchapter C corporation). Treatment as a “disregarded entity” is generally the simplest and least costly since no corporate or Subchapter S election is required at formation and since earnings are reported on simpler Form 1040-Schedule C’s and no corporate tax return (Form 1120 or Form 1120S) is required.

5. What are the “tax considerations” for a “multiple-member LLC”?
A “multiple- member LLC” will be treated as a “partnership” unless its members elect to be treated as a corporation (either as a Subchapter S or Subchapter C corporation). “Partnership” tax treatment can be complicated and generally it is simpler and more cost-effective for a “multiple-member LLC” to elect to be treated as a Subchapter S corporation. “Subchapter S” treatment is generally slightly more costly than a “disregarded entity” since a Subchapter S election is required at formation and since earnings are reported on a corporate tax return (Form 1120S). “Subchapter C” treatment is generally not advantageous to small business entities and will not be discussed in detail since it often results in ‘double taxation’ with profits first taxed at the corporate level and then again at the individual shareholder level.

6. What are the differences between a “limited liability company” and a “Sub S corporation”?
LLC’s and Subchapter S corporations are substantially similar from the key perspectives of limitations on liability and “pass-through” tax treatment. LLC’s can achieve “pass-through” tax treatment either as a “disregarded entity” or through its own Subchapter S election. Subchapter S corporations can only achieve “pass-through” tax treatment through a Subchapter S election. Differences arise in the following areas:

LLC’s have more flexibility, and no limitations, in their permitted ownership structure. Subchapter S corporations are limited to 100 shareholders, all of which must be natural person shareholders (no corporations, LLC’s, partnerships, trusts or alien individuals) and cannot have more than one class of stock. These distinctions may be relevant for certain tax-planning, asset-protection and other considerations.

“Single-member LLC’s” treated as “disregarded entities” are generally simpler and less costly than a Subchapter S corporation since no corporate or Subchapter S election is required at formation and since earnings are reported on simpler Form 1040-Schedule C’s. No corporate tax return (Form 1120 or Form 1120S) is required for LLC’s.

7. What is a “Corporation”?
A “corporation” is a business entity created by one or more owners (“shareholders” in corporate parlance) under state laws to conduct one or more lawful businesses. Corporations have been prevalent in every state. Even though the laws are generally similar from state to state, there are some variances. A corporation is a separate legal entity from its owners/shareholders. The corporation’s owners/shareholders are generally not personally liable for the debts of the corporation so long as the corporation formalities are followed. A corporation is governed by a board of directors, not by its shareholders, in accordance with the terms of its Articles of Incorporation and its Bylaws (or applicable state laws if there are no Bylaws). Corporations are created by filing its Articles of Incorporation with the applicable state.  Annual reports must be filed each year (usually by April 1 or May 1) to avoid late fees and eventual administrative dissolution. Generally, a corporation must register as a “foreign entity” if it conducts business in states other than its state of incorporation. See the questions below for a discussion of the tax considerations applicable to corporations, including the differences between Subchapter S versus Subchapter C corporations.

8. What do I need to start a corporation?
We have prepared an all-inclusive package of services with no hidden fees to get you started.  We will prepare and file your Articles of Incorporation and Bylaws, prepare and obtain your federal employer identification number, prepare and file your Subchapter S election, and prepare your organizational minutes and bank account resolution.  This is everything you need to get started.  Additional “bells and whistles” can be added by you at any time.

9. What is an “S Corporation”?
An “S Corporation” combine some of the advantages of a corporate structure with the “pass-thru” tax advantage of partnerships. “Subchapter S” is a reference to the tax code sections that distinguish the “S Corporation” from the traditional “C Corporation” under Subchapter C and by which income is taxed only once at the shareholder level. C Corporations are taxed at both the entity level and the dividend level (this is commonly referred to as the “double taxation” effect inherent in C Corporations). Before LLC’s, S Corporations were perhaps the most common form of ownership for smaller, privately-held corporations. S Corporations include certain shareholder and ownership restrictions that are not applicable to LLC’s.

  • All S Corporations provide limited liability protection to their owners/shareholders. Shareholder liability is limited to their investment in the entity. S Corporation liabilities are limited to the assets and resources of the entity. (LLC’s, C Corporations and limited partnerships provide similar protection. Proprietorships and general partnerships do not.)
  • S Corporations are owned by shareholders and managed by a board of directors and officers. LLC’s offer more flexibility in these areas than corporations and partnerships.
  • Shareholders may number 1 or more with a maximum of 100. Shareholders are limited to resident individuals with certain limited exceptions. Shareholders may not include LLC’s, partnerships, corporations, etc., or foreign individuals or entities. (LLC’s, C Corporations and partnerships offer more flexibility. Proprietorships and S Corporations do not.)
  • Shareholder interests are restricted to one class and may not include different classes, voting rights, capital or profits interests, etc. (C Corporations and partnerships offer more flexibility. Proprietorships and S Corporations do not.)
  • S Corporations are managed by a board of directors and officers. Directors and officers (including shareholders acting as directors or officers) are protected by the “business judgment rule” for decisions made in good faith, but may be individually liable for gross negligence or willful misconduct in their actions as directions or officers. (S Corporations may consider the procurement of directors and officers insurance coverage in order to provide additional protection to directors and officers against individual liabilities.)
  • S Corporations are treated similar to partnerships for federal tax purposes and the “double taxation” of C Corporations is avoided. S Corporations require an affirmative tax election. Revenues and expenses are reported (not taxed) at the entity level through Form 1120S and passed through by Form 1120S-K-1’s and taxed at the member level on Form 1040, Schedule E.

For any entity offering an investment opportunity to more than 1 investor, federal and/or state securities laws may apply and may require certain disclosures or registrations in connection with such an offering. Please consult a licensed attorney for advice concerning your specific circumstances.

10. What are the “tax considerations” for a “Subchapter S corporation”?
To avoid the “double taxation” applicable to Subchapter C corporations, shareholders may file an election to be treated as a Subchapter S corporation. Subchapter S corporations are treated like “partnerships” which are “pass-through entities.”  Subchapter S corporate earnings are “passed-through” without tax at the corporate level so that such earnings are taxed only once at the individual shareholder level.  


The “Subchapter S” election includes certain restrictions and is available to certain “smaller corporations” and their shareholders. Over time these “Subchapter S” restrictions were seen as too restrictive. The “limited liability company” was created to broaden the availability and flexibility of “pass-through” tax treatment. Like Subchapter S corporations, LLC’s that elect “disregarded entity’ or “Subchapter S” treatment, “pass-through” their earnings without tax. Earnings are taxed only once at the individual owner level.


“Subchapter S” treatment is generally slightly more costly than an LLC that is treated as a “disregarded entity”.  A “Subchapter S” election is required at formation and earnings are required to be reported on a corporate tax return (Form 1120S). 

11. What is a “Subchapter C Corporation”?
C Corporations represent the traditional corporation and original tax structure. “Subchapter C” is a reference to the tax code sections applicable to corporations that do not file a Subchapter S election. C Corporations are subject to tax rates at the entity level different from the individual level. Individual shareholders are taxed only when they receive dividends or distributions from the entity. C Corporations are taxed at both the entity level and the dividend level (this is commonly referred to as the “double taxation” effect inherent in C Corporations). C Corporations are the most common form of larger publicly-held corporations and are useful when earnings are expected to be retained and re-invested by the corporate entity.

  • All C Corporations provide limited liability protection to their owners/shareholders. Shareholder liability is limited to their investment in the entity. C Corporation liabilities are limited to the assets and resources of the entity. (LLC’s, S Corporations and limited partnerships provide similar protection. Proprietorships and general partnerships do not.)
  • C Corporations are owned by shareholders and managed by a board of directors and officers. LLC’s offer more flexibility in these areas than corporations and partnerships.
  • Shareholders may number 1, 2 or more and there is no maximum limit. Shareholders may include individuals, LLC’s, partnerships, corporations, trusts, etc., any or all of which may include resident or foreign individuals or entities. (LLC’s, C Corporations and partnerships offer more flexibility. Proprietorships and S Corporations do not.)
  • Shareholder interests are not restricted to one class and may include different classes, voting rights, capital or profits interests, etc. (C Corporations and partnerships offer more flexibility. Proprietorships and S Corporations do not.)
  • C Corporations are managed by a board of directors and officers. Directors and officers (including shareholders acting as directors or officers) are protected by the “business judgment rule” for decisions made in good faith, but may be individually liable for gross negligence or willful misconduct in their actions as directions or officers. (C Corporations may consider the procurement of directors and officers insurance coverage in order to provide additional protection to directors and officers against individual liabilities.)
  • C Corporations are subject to tax rates at the entity level different from the individual level. Individual shareholders are taxed only when they receive dividends or distributions from the entity. C Corporations are taxed at both the entity level and the dividend level (this is commonly referred to as the “double taxation” effect inherent in C Corporations). Revenues and expenses are reported and taxed at the entity level by the entity through Form 1120 and dividends or distributions, if any, are reported by Form 1099’s and taxed at the member level on Form 1040, Schedule B.
  • For any entity offering an investment opportunity to more than 1 investor, federal and/or state securities laws may apply and may require certain disclosures or registrations in connection with such an offering. Please consult a licensed attorney for advice concerning your specific circumstances.

12. What is a “Nonprofit Corporation”?
A Nonprofit corporation is a special type of corporation that has been organized to meet specific tax-exempt purposes. The nuances and complications of nonprofit corporations are not addressed here.

13. What are a “Partnership”, and a “Limited Partnership”?
Partnerships include general partnerships (in which there is no limited liability protection and all partners are individually liable for all partnership liabilities and limited partnerships (in which there is limited liability protection for limited partners, but not for general partners). Partnership profits are not taxed at the entity level, but rather profits are “passed-thru” and taxed only once at the partner level. Limited partners may not be involved in management if they wish to preserve their limited liability protection. Limited partnerships have been common structures in real estate or similar projects.

  • Limited partnerships provide limited liability protection to their limited partners. General partnerships, and general partners in limited partnerships, have no limited liability protection and are liable for all partnership liabilities. Limited partner liability is limited to their investment in the entity. (LLC’s, s Corporations and C Corporations provide similar limited partner protection. Proprietorships and general partnerships do not.)
  • Partnerships S Corporations are owned by partners and managed by general partners. LLC’s offer more flexibility in these areas than corporations and partnerships.
  • Partners may number a minimum of 2 and there is no maximum limit. General partners and limited partners Shareholders may include individuals, LLC’s, partnerships, corporations, trusts, etc., any or all of which may include resident or foreign individuals or entities. (LLC’s, C Corporations and partnerships offer more flexibility. Proprietorships and S Corporations do not.)
  • Partner interests may include different classes, voting rights, capital or profits interests, etc. offering a wide range of flexibility. Limited partners are the only partners with limited liability protection. (LLC’s, C Corporations and partnerships offer more flexibility. Proprietorships and S Corporations do not.)
  • Partnerships are managed by general partners. Limited partners may not be involved in management if they wish to preserve their limited liability protection. General partners are liable for all of the partnership’s liabilities. General partners are protected by the “business judgment rule” against fellow partners for decisions made in good faith, but may be individually liable to fellow partners for gross negligence or willful misconduct in their actions as general partners. (Partnerships may consider the appointment of entities, not individuals, to serve in general partner roles and/or the procurement of directors and officers insurance coverage in order to provide additional protection to general partners against individual liabilities.)
  • Partnership profits are not taxed at the entity level, but rather profits are “passed-thru” and taxed only once at the partner level. Revenues and expenses are reported (not taxed) at the entity level through Form 1065 and passed through by Form 1065-K-1’s and taxed at the partner level on Form 1040, Schedule E.
  • For any entity offering an investment opportunity to more than 1 investor, federal and/or state securities laws may apply and may require certain disclosures or registrations in connection with such an offering. Please consult a licensed attorney for advice concerning your specific circumstances.

14. What is a “Proprietorship”?
Proprietorships represent the simple ownership of a business, property or venture by an individual or by multiple individuals (as tenants in common, joint tenants, tenants by the entirety, etc.) without the use of a partnership, S Corporation, C Corporation or LLC. Proprietorships offer no limited liability protection to its owners/proprietors. Each proprietor, tenant owner, etc. is or may be liable for all of the proprietorship’s liabilities.

  • Proprietorships offer no limited liability protection to their owners/proprietors. Proprietors are or may be liable for all of the proprietorship’s liabilities. (LLC’s, S Corporations, C Corporations and limited partnerships provide limited liability protection. Proprietorships and general partnerships do not.)
  • Proprietorships are owned by a single proprietor or multiple tenant owners and managed by such proprietor/multiple tenants.
  • Proprietors are by definition singular individual only for sole proprietorships or multiple individuals only for tenants in common, joint tenants, tenants by the entirety, etc. (LLC’s, S Corporations, C Corporations and partnerships offer more flexibility. Proprietorships and S Corporations do not.)
  • Proprietor interests may include sole proprietor interests, tenants in common, joint tenants, tenants by the entirety, etc. that are limited by the structure of ownership chosen. (LLC’s, C Corporations and partnerships offer more flexibility. Proprietorships and S Corporations do not.)
  • Proprietorships are managed by their Proprietors. Proprietors are or may be liable for all of the Proprietorship’s liabilities. Proprietors are protected by the “business judgment rule” against fellow proprietors for decisions made in good faith, but may be individually liable to fellow proprietors for gross negligence or willful misconduct in their actions as managers. (Proprietors may consider the procurement of directors and officers insurance coverage in order to provide additional protection to proprietors against individual liabilities.)
  • Proprietorship are taxed once at the individual proprietor level based upon their ownership interests. Revenues and expenses are reported and taxed at the individual level directly through Form 1040, Schedule C.
  • For any entity offering an investment opportunity to more than 1 investor, federal and/or state securities laws may apply and may require certain disclosures or registrations in connection with such an offering. Please consult a licensed attorney for advice concerning your specific circumstances.

15. What is a “DBA”?
Some states require DBA or fictitious business name filings to be made for the protection of consumers conducting business with the entity. A company is said to be "doing business as" when the name under which they operate their business differs from its legal, registered name.

16. What is a “Registered Agent”?
A registered agent, also known as a resident agent or statutory agent, is a business or individual designated to receive service of process (SOP) when a business entity is a party in a legal action such as a lawsuit or summons.

17. What local business licenses will I need?
Local business licenses vary from city to city, county to county and go by many different names, i.e., occupational licenses, business permits, etc. While many home businesses fail to seek such licenses, it is best to check with your city or county to determine if you are required to obtain a local business license. They will be able to advise you of the requirements, forms, costs, etc.