Corporate shareholders who work for the corporation must be treated like employees of the corporation. For tax purposes, corporations can be C corporations or S corporations. S corporations are pass-through entities—profits pass through the business and are taxed at the shareholders' individual rates. For more details, see " Corporations and S Corporations vs.
A sole proprietor personally owns a business and all its assets. There is no separate business entity involved. The sole proprietor is personally liable for all business debts and lawsuits. This means that creditors or lawsuit plaintiffs can reach the proprietor's personal assets to satisfy a debt or judgment.
An LLC is a separate business entity. The LLC owns the business and all its assets. For more details, see " Sole Proprietorships vs. In some states, individuals involved in certain types of professional practices are not allowed to form regular LLCs. Instead, they must form professional LLCs. These are LLCs specially designed for licensed professionals like lawyers, doctors, architects, engineers, accountants, and chiropractors.
The main difference between professional and regular LLCs is that all the members of a professional LLC must hold a professional license. For details, see " Professional Limited Liability Companies. A series LLC is an LLC whose articles of formation allow for unlimited segregation of membership interests, assets, and operations into independent series. Each series operates like a separate entity with a unique name, bank account, and separate books and records.
For example, series LLCs can be used by real estate investors who own multiple properties. Each series isolates and protects its properties from the liabilities of the properties in other series. Companies with different profit centers can also use series LLCs to segregate and shield each business operation. Only certain states allow series LLCs. SMLLCs are allowed in all states. They are treated much the same as any other LLC. However, for tax purposes, they are disregarded entities.
This means they are ordinarily taxed like sole proprietorships—as if the LLC didn't exist. LLCs owners have great flexibility in deciding how their entity is managed. Most LLCs are member-managed. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. A limited liability company LLC is a business structure in the U.
Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship. While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of an LLC is a feature of a partnership rather than an LLC.
Limited liability companies are permitted under state statutes, and the regulations governing them vary from state to state. LLC owners are generally called members. Many states don't restrict ownership, meaning anyone can be a member including individuals, corporations, foreigners, foreign entities, and even other LLCs. Some entities, though, cannot form LLCs, including banks and insurance companies. An LLC is a formal partnership arrangement that requires articles of organization to be filed with the state.
An LLC is easier to set up than a corporation and provides more flexibility and protection for its investors. LLCs may elect not to pay federal taxes directly. Instead, their profits and losses are reported on the personal tax returns of the owners. The LLC may choose a different classification, such as a corporation.
If fraud is detected or if a company fails to meet its legal and reporting requirements, creditors may be able to go after the members. The wages paid to members are deemed operating expenses and are deducted from the company's profits. Although the requirements for LLCs vary by state, there are generally some commonalities.
The very first thing owners or members must do is to choose a name. Articles of organization can then be documented and filed with the state. These articles establish the rights, powers, duties, liabilities, and other obligations of each member of the LLC. An LLC is governed by a written operating agreement that describes the way the business will be run, the roles of the members, and the way profits will be shared. But LLCs are very flexible in the specifics of the agreement.
In contrast, corporations have a rigid structure of officers, directors, and shareholders. Being an LLC means you'll need to draw a firm line between your business life and your personal one. Mingling business and personal finances—or being unclear about whether you're acting in a business or personal capacity—could cause you to lose your liability protection in a dispute.
Here are some actions to take:. Forming an LLC may also mean changing the way you pay your members and handle taxes. Your LLC can be taxed in the same way as a sole proprietorship or partnership, with self-employed owners paying their own quarterly income and self-employment taxes. But some LLCs save money by electing S corporation taxation.
In an S corp. A business accountant can explain more and advise you on the best tax status for your business. State law may require you to keep certain LLC records, and you may have to file an annual LLC report and pay an annual fee. Staying on top of reporting deadlines will ensure your LLC remains in good standing with the state. Many small business owners are unsure whether to form a business entity at all—rather than remaining a sole proprietorship or partnership—or whether an LLC or a corporation is best.
Advantages of a limited liability company over a partnership or sole proprietorship include:. Corporations can have these same advantages, but they have a less flexible operating structure and are usually subject to more reporting requirements than LLCs. Compared to a sole proprietorship or partnership, the main disadvantage of a limited liability company is the expense and paperwork of setting up the business and filing annual reports.
There are also potential administrative hassles in keeping a separate bank account and running payroll. If you plan to solicit outside investment, you may find that investors prefer corporations over LLCs. However, employees of a C-corporation who receive fringe benefits do not have to report these benefits as taxable income. The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site.
The attorney listings on this site are paid attorney advertising. In some states, the information on this website may be considered a lawyer referral service. Please reference the Terms of Use and the Supplemental Terms for specific information related to your state. Lawyer Directory. Call us at 1 Advantages and Disadvantages of LLCs. What would you like to name your LLC?
Need time on your business name?
0コメント