Corporations, LLCs & Partnerships
The form of ownership that best suits your business venture should be given careful consideration. There are long-term legal and tax implications depending on the business structure chosen, so it is important to consult with your accountant and attorney before selecting the form of ownership that is right for you.
What is a sole proprietorship?
Many small businesses start out as sole proprietorships. These businesses are owned by one person. Sole proprietors own all the assets of the business and the profits generated. They also assume responsibility for any of its liabilities or debts. Legally, you are one in the same with the business.
What is a partnership?
In a partnership, two or more people share ownership of a single business, and like proprietorships, the law does not distinguish between the business and its owners. We recommend that partners have a legal agreement indicating how decisions will be made, profits shared, disputes resolved, future admission of partners, buyouts, and what steps will be taken if dissolution of the partnership is necessary. There are several different partnerships that may be considered: general partnership, limited partnership and partnership with limited liability, and joint venture.
What is a corporation?
A corporation chartered by the state in which it is headquartered is considered by law to be a unique entity, separate and apart from those who own it. A corporation may be taxed, sued, and enter into contractual agreements. The owners of a corporation are its shareholders, and the shareholders elect a board of directors to oversee the major policies and decisions. Another issue is the difference between an S corporation vs. a C corporation for tax purposes. The corporation has a life of its own and does not dissolve when ownership changes hands.
What is a limited liability company (LLC)?
The LLC is probably the most common form of business ownership today. It is a hybrid business structure designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The owners are members, and the duration of the LLC is typically determined when the organization papers are filed. The time limit can be continued by a vote of the members at the time of expiration. LLCs must not have more than two of the four characteristics that define corporations: limited liability to the extent of assets, continuity of life, centralization of management, and free transferability of ownership interests.