Starting Your Business

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Starting Your Business

Limited Liability Companies (LLC)are widely viewed as the most flexible entity structure from an ownership, management and taxation viewpoint. LLCs offer limited liability protection with many of the advantages of proprietorship, partnership and S Corporations and without some of their inherent disadvantages. LLC profits are not taxed at the entity level, but rather profits are passed-thru and taxed only once at the member level.

S Corporations 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, thereby avoiding the double taxation effect inherent in C Corporations. Before LLCs, 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 LLCs.

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.

Partnerships

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 Liability 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.

LLCs, s Corporations and C Corporations provide similar limited partner protection. Proprietorships and general partnerships do not.

Proprietorships represent the simple ownership of a business, property or venture by an individual (as sole proprietor) 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 proprietorships liabilities.

 

Disclosure

The information contained in this website is for general information purposes only and does not purport to render legal advice. Specific information may vary between state laws and between entities. Please consult a licensed attorney for advice concerning your specific circumstances.

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.