One of the most important decisions you can make as a new business entrepreneur or experienced business owner is determining the right business entity for you. What business entity you choose to operate under can affect your personal liability, tax consequences, and your overall bottom line.
Your choice of entity may be affected mainly by minimizing personal liability or may be affected by your investment and operation needs. Whatever the case, the lawyers at Ogden Law Firm, PC can help you find the right business entity for you. Below is a brief summary of some of the considerations for choosing a particular entity. This summary is not intended to provide you legal advice, as each case and client is different. Rather, this is a general summary for your convenience. Contact us if you would like to talk to a business law attorney about forming a business entity.Corporation
A corporation is a separate legal entity in the eyes of the law. Generally speaking, this concept has a number of different results for the business owner. For example, depending on the type of corporation, shareholders can have limited or unlimited personal liability. In addition, the corporation has the capacity to sue and be sued in its own name. Moreover, a corporation pays its own taxes on the income it receives and then the shareholders also pay tax on certain monies received from the corporation. Thus, this type of structuring generally results in a double tax for the shareholders.
However, there is another type of corporation called a “S-Corporation” that maintains the limited liability of a regular corporation (aka a “C-Corporation”) but does not have the unfavorable double tax consequences. A S-Corporation has special limitations and requirements, however. Please visit our Corporations Page for more information about forming and operating your corporation.
Limited Liability Companies (LLC’s)
Perhaps the most sought after business entity today is the LLC. This is because a LLC provides the benefits of limited liability just like a corporation but does not have the unfavorable tax consequences of a corporation nor the Subchapter-S rules and restrictions applicable to S-Corporations.
Thus, a LLC shields the owners from personal liability, including debts, judgments and other liabilities incurred by the business or the business owners. In addition, a LLC does not have the double tax consequences of a corporation. A LLC does require filing fees and papers with the appropriate authorities and does not begin these requirements have been met.
The formation of a LLC requires an Operating Agreement which should be drafted by an experienced and seasoned attorney who can build the flexibility you need into your company and how it will operate. Contact us to discuss LLC entity formation and how it can be used and adapted for you.General Partnership
A general partnership is simply a business for profit that is owned by two or more people. The owners of a partnership do not need to file papers or pay any fees to begin the partnership. Rather, the partnership begins when the business begins. Generally speaking, each partner is taxed for their share of the business profits and each partner is liable for debts as well. The biggest downside of this entity choice is that there is personal liability for the debts, judgments and liabilities incurred by the business.Limited Partnership
Unlike a general partnership, a limited partnership requires filing papers with the appropriate authorities and paying fees to begin the partnership. This type of partnership, however, consists of two different types of partners, a general and limited partner. Generally speaking, a general partner is the one who runs the day to day operations while the limited partner is the passive investor, who only votes on major transactions and issues, such as sale of all or substantially all of the assets of the partnership. The limited partner is not personally liable for the debts and liabilities of the company but the general partner is. This type of business entity choice works well with businesses that have a potential for personal liability and the owners want asset protection.Nonprofit Corporations
Nonprofit corporations are corporations that are formed with the intent to carry out a purpose that is charitable, educational, literary, religious, or scientific. One of the largest benefits to a nonprofit corporation is that the money that is taken in for the charitable purpose is normally tax-free.
If you have questions, contact us today to speak with an Ogden Law Firm, PC attorney.