Let us Incorporate your Company: Types of Entities we Create
Any person who operates an enterprise, whether for profit or non-profit, can incorporate. It is imperative that one seeks the legal assistance prior to deciding which type of incorporation is best for them.
Limited Liability Company (“LLC”)
This form of incorporation was introduced in 1977 in the State of Wyoming, and adopted by all 50 states by 1993. An LLC is a distinct legal entity, whereby the owner(s) is/are able to open a bank account, hire employees, do business, etc., all under the LLC’s name. The owner(s) are also personally protected from any debt and/or liabilities accrued by the entity.
By default, the LLC is taxed, through the owner(s) of the entity, and is thus is not subject to double taxation (See C - Corporation below). Any gains and/or losses are passed from the entity to the owner(s), and shall be reported on the owner(s) tax return.
A LLC does not contain shares/stocks and its owner(s) is/are therefore unable to raise capital through such structures commonly used by corporations. Although there is no limit to the number of investors in a LLC, sale of any interest of ownership must be consented to by all the owners.
Necessary Documentation:
1. Articles of Organization
2. Consent of Members
3. Operating Agreement
Corporation (“Inc., Corp., etc.”)
A Corporation is an entity separate and distinct from its owners, commonly referred to as shareholders. The shareholders are protected from personal liability of any creditors of the corporation and can only be held liable up to the amount shareholder invested. The corporation has an unlimited life span and will survive regardless of illness and death of the shareholder.
There are two basic types of Corporations:
C–Corporations:
A C–corporation has an unlimited amount of shareholders. Shareholders can be made up of both US citizens and non citizens. Shares, themselves, are freely transferable, and can be sold to any party, typically without the consent of the other shareholders.
One of the disadvantages of a C - corporation is that they are subject to double taxation. The corporation itself is taxed on profits made by the corporation, and when these profits are distributed to the shareholders, in the form of dividends, shareholders themselves are taxed on the profits distributed.
Necessary documentation:
1. Articles of Incorporation
2. Corporate By-laws
S – Corporations
An S – corporation has the advantages of having shares but is limited in its amount of shareholders allowed and transferability of the shares. Only US citizens may own shares in an S – Corporation. Furthermore, shares of an S – Corporation are restricted in that it can have no more than 100 shareholders.
S – corporations are not subject to double taxation. Profits made by the S – Corporation will only be taxed when profits are dispensed to the shareholders, via dividends. The profits and/or losses, similar to the LLC, will pass from the corporation to the shareholder and shall be reported in the shareholders personal tax return.
Necessary Documentation:
1. Articles of Incorporation
2. S- election
3. Corporate By-laws
Partnership
A general partnership is an association of two or more people carrying on a business with the goal of earning a profit. The entity is seen as being the arm of its owners and the partners are not personally protected from the debt and/or liabilities accrued by the partnership. The partnership will survive as long as the life of each partner. If one of the partners dies, then the partnership is automatically dissolved.
There is little formality when creating a partnership. There is no need for state filing. Upon proof otherwise, A partnership is assumed to be created when two or more people are involved in a business for profit.
For taxation purposes, the profits or losses will be shared equally by each partner and shall be reported in each partner’s individual tax return.
Necessary Documentation
1. Articles of Incorporation
2. Partnership Agreement
Limited Liability Partnership (“LLP”)
State law typically limits LLP’s to be formed by accountants, lawyers, architects and/or similar professionals. Only some states currently recognize LLP’s. Typically, a partner in an LLP is personally liable only for his or her own negligence or that of an employee working under his or her direct supervision. A partner is not personally liable for the errors, omissions, incompetence, or negligence of the other partners, their employees or agents. Each partner, tough, is personally responsible for the debts and/or liabilities of the partnership. Each partner must consent to sale of any interest or assets of the partnerships.
For taxation purposes, the profits or losses will be shared equally by each partner and shall be reported in each partner (’s) individual tax return.
Necessary Documentation
1. Articles of Incorporation
2. Partnership Agreement
Please Contact Us for a free consultation in regards to setting up your company.