For a corporation, members are not personally responsible for the actions of the company.
Another distinguishing feature of formal versus informal formation is the separation of the owners from the company.
In partnerships or sole proprietorships, the owners are not considered separate from the company and its responsibilities and operations. In contrast, owners and members of LLCs and corporations are considered separate, which is partly why their personal assets are protected in case of financial losses in the company.
This formality entails additional protection and limited personal liability. Sole proprietorship, limited liability (LLC) or corporation (S or C). These are all ways for the government to understand what type of business you are so they can tax you accordingly.
Unlimited liability means that creditors are more likely to give you credit if you need it.
A limited liability company, better known as an LLC, is a business structure that combines direct taxation (as in a partnership or sole proprietorship) with the limited liability of a partnership.
An LLC is not a corporation, it is a legal form of business that provides protection and limited liability to its owners. Basically, if a corporation and a sole proprietorship (or partnership) had a baby, they would call it an LLC.
With the limited liability features of a corporation and the convenience of a flow-through income tax (where the business income is reported as part of the owner's personal income and not taxed separately), this option is suitable for multiple ownership circumstances.
One of the most significant aspects of a corporation is its limited liability. That is, shareholders are entitled to share in profits through shares and dividends paid, but are not personally liable for the company's debts or for any legal problems that may arise.
In this context, a company is a business partnership in which two or more individuals manage and maintain their business.
Unlike a corporation or LLC, a partnership does not require any filing with the federal government. Therefore, all three types of partnerships - general, limited or limited liability - are somewhat informal structures. In a general partnership, all owners (or general partners (GPs)) are equally liable for the debts of the company, each assuming unlimited liability.
A limited liability partnership is for those who want to assume as little liability as possible for the entire partnership.
S corporations enjoy pass-through taxation, but have several ownership restrictions. For example, they cannot have more than 100 shareholders, cannot include foreign shareholders, and cannot have shareholders who are partnerships.
LLCs offer straightforward taxation with no restrictions on the number and type of owners they can have.
The simple and adaptable business structure of an LLC is perfect for many small businesses.
While both corporations and LLCs offer their owners limited personal liability, LLC owners can also take advantage of the LLC's tax advantages, management flexibility and minimal recordkeeping and reporting requirements.
If the cons truly outweighed the pros of forming an LLC, it would not be the most common form of business filing in the country.
The advantages of operating as an LLC include limited personal financial liability for members, favorable pass-through taxation, ease of formation, special allocation of profits and ease of transfer of ownership.
