BASIC BUSINESS ENTITIES OUTLINENOT INTENDED AS LEGAL ADVICE - CONSULT WITH A QUALIFIED ATTORNEY BEFORE RELYING ON THIS INFORMATION
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PRO'S AND CONS OF LLCS, C AND
S CORPORATIONS
Liability
Both LLC's and Corporations protect investors or owners personally from liability for
the entity's obligations, thus protecting the investors or owners' assets.
Number of Persons Required
Both LLC's and Corporations can be owned and operated by one person only. In
the case of a corporation, participation by more than one person in the business is desirable but not required.
Income Taxes
C Corporations take their losses against future income of the Corporation. C Corporations' income and losses are
not taken by individual shareholders on the shareholders' individual tax returns. On the other hand, both S Corporations
and LLC's treat a shareholder or member's share of the entity's income and losses as income and losses to the
individual.
Advantages
of Corporations LLC's have been around since 1990; Corporations
have been around for hundreds of years. There is little case law or precedent concerning disputes between LLC members.
Corporations are internationally recognized, LLC's are not. There is no better way to protect a shareholder from
liability than with the massive body of corporation law. For these reasons, S Corporations are usually recommended.
Advantages of LLC's IRS rules restrict the number and types of S Corporation shareholders. Also, the
number of shares issued to an S shareholder should reflect that shareholder's contribution, whereas a proportionate relationship
between ownership and interest need not always present in an LLC. LLC accounting and bookkeeping functions may be simpler
depending upon the number of employees of the LLC.
Cost Usually, the
cost of incorporating as a C or S Corporation is the same as the cost of forming an LLC.
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ENTITIES AVAILABLE UNDER COLORADO LAW
CORPORATION - S and C
Documents required include Articles of Incorporation, Bylaws, Consents to Action or Minutes, Shareholder Agreements.
This entity protects shareholders from personal liability. S Corporations allow partnership treatment of its income
and losses. C Corporations carry losses forward against future income.
LLC - LIMITED
LIABILITY COMPANIES
Documents required include Articles of Organization and Operating Agreement. Created by statute in 1990. Combines
some aspects of a corporation, a general partnership, a limited partnership and a sole proprietorship. It is taxed as
a general partnership for state and federal income tax purposes. Owners are "members" and have "membership
interests" (not "shareholders" or "shares"). A manager or managers conduct day to day business.
Members set the policy and appoint the manager or managers. The members may serve as managers. Perpetual duration.
An LLC differs from a limited partnership because members are not liable for partnership obligations by virtue of their participation
in the management of the LLC.
NONPROFIT CORPORATIONS
Documents required include Articles of Incorporation, Bylaws, Consents to Action or Minutes
and numerous documents required for federal tax exemption. Directors, officers and members (if any) are not liable for
the entity's obligations. Income and profits from this entity are not distributable to members, directors or officers.
Filing the appropriate documents with the Internal Revenue Service (IRS) must occur in order for contributors to claim a tax
deduction for contributions.
LIMITED PARTNERSHIPS
Documents required include Certificate of Limited Partnership and Partnership Agreement.
Limited partners are not liable for the debts and liabilities of the limited partnership. If a limited partner is involved
in the management of the partnership and acts as a general partner, the limited partner will lose the protection from liability.
The general partner(s) is liable for partnership obligations. At least two persons are required to form a Limited Partnership.
An LLC differs from a limited partnership because members are not liable for partnership obligations by virtue of their participation
in the management of the LLC. Limited Partnerships may terminate on the death, withdrawal or bankruptcy of a partner.
LPA's - Limited Partnership Associations are similar to Limited Partnership
except that this entity's duration is perpetual.
LLLP - LIMITED LIABILITY LIMITED PARTNERSHIPS
Documents required include: Certificate of Limited Partnership, Certificate of Limited Liability Limited Partnership, Partnership
Agreement. This is a form of Limited Partnership in which a general partner is protected from liability for acts of
other general partners except for that partner's negligence, wrongful acts, or misconduct. LLLP's may terminate
on the death, withdrawal or bankruptcy of a partner.
PARTNERSHIPS
Documents required
include a Partnership Agreement. All partners are liable for partnership obligations. The provisions of the Partnership
Agreement govern. Partnerships are often used when two or more unrelated or unmarried people wish to purchase real estate.
Partnerships may terminate on the death, withdrawal or bankruptcy of a partner.
LLP - LIMITED LIABILITY PARTNERSHIPS
Documents required include: Certificate of Limited Partnership and Partnership Agreement. Partners are not liable for
partnership obligations except for the partner's negligence, wrongful acts, or misconduct. LLP's may terminate
on the death, withdrawal or bankruptcy of a partner.
PC - PROFESSIONAL SERVICE CORPORATIONS
Documents
required include Articles of Incorporation, Bylaws, Consents to Action or Minutes, Shareholder Agreements. PC's
are available to Certified Public Accountants, Architects, Chiropractors, Dentists, Professional Engineers, Lawyers, Optometrists,
Physical Therapists, Physicians, Surgeons, Podiatrists, Professional Counselors and Veterinarians. Restrictions
apply, including restrictions on protections from liability, the names such corporations may use, provision of information
to licensing agencies, and the maintenance of professional liability insurance to protect members of the public dealing with
such corporations.
PLLC
- PROFESSIONAL SERVICE LIMITED LIABILITY COMPANIES
Documents
required include Articles of Organization and Operating Agreement. PLLC's are available to Certified Public Accountants,
Engineers and Land Surveyors and Lawyers.
PLLP - PROFESSIONAL LIMITED LIABILITY PARTNERSHIPS
Certified Public Accountants, Architects, Professional Engineers, Podiatrists, Chiropractors, Dentists, Medical Doctors, Optometrists,
Physical Therapists, Psychologists, Clinical Social Workers and Marriage and Family Therapists may practice as professional
limited liability partnerships.
FOREIGN ENTITY REGISTRATION
Note that for each of the foregoing business entities there is an equivalent foreign (out of state or outside the United States)
entity available.
NOT INTENDED AS LEGAL ADVICE - CONSULT WITH A QUALIFIED ATTORNEY BEFORE
RELYING ON THIS INFORMATION
Copyright
2007 Louise Aron All Rights Reserved
