FOUR MAIN ENTITIES 1. Sole Proprietorship 2. Partnership ● General ● Limited 3. Limited Liability Company ● Member Managed ● Manager Managed 4. Corporations ● "S" Corporations ● "C" Corporations ● Professional Corporations ● Non-Profit Corporations Sole Proprietorship Individual Person without Liability Protection. Taxation directly "flows" to the person and is reported in Schedule C of the Tax Form 1040 with few deductions for expenses. Partnership Two or more individuals or companies formed together for a common business goal with expectations of financial gain or profit. Liability is joint and several to all partners unless "limited" status, with Taxation directly "flows" to each partner. Each partner shares equally in the profit and loss unless a contrary agreement in writing. Partnership agreement should be in writing and filed with the Secretary of State. More formal than a Sole Proprietorship. Limited Liability Company (LLC) One or more persons or companies or corporations formed together for a common business goal. Liability is limited to company assets unless LLC is not properly formed, managed or reported. Each member is liability is limited to the amount of money contributed to the LLC in form of capital contributions - contributions in return for stock shares in the LLC. Taxation "flow" directly to the members, usually, with a greater opportunity for deductions. LLC can be "Member-Managed" where all members, those with capital contributions, share in the management and operation of the LLC or "Manager Managed" where a person, not necessarily a member, directs the management and operation of the LLC. LLC's can distribute the profits and losses in any manner, not necessarily on percentage of shares. LLC needs to be registered with the Secretary of State and file annual reports. More formal than Partnership, less formal than Corporation. Can restrict the selling of shares outside of the Members. Corporations One or more persons or LLC's or companies or corporations formed together for a common goal. Liability is limited to the amount of money to the corporation in form of capital contributions - contributions in return for stock shares in the corporation. Taxation at the Corporate Level. Employees are taxed as employees, Shareholders receive distributions which are individually taxed. Corporations have a greater opportunities for deductions, including health care insurance payments. Corporations have a Board of Directors, which directs the course for the corporation, an Executive Officer Level (CEO, President, VP etc) which control the daily operations , and the Shareholders, who have no say the daily operations but vote on the Directors. "Close" corporations can blur the lines between the three. Corporations distribute the profits based on percentage of shares. Corporation needs to be registered with the Secretary of State and file annual reports. More formal than Partnership, more formal than a LLC. Can not restrict the sales of shares to others, generally. Subchapter "S" corporations can be less formal (less paperwork) with "flow" through taxation ( no corporate tax) but have shareholder restrictions. Professional Corporations are mainly for those professional occupations that includes physicians, chiropractors, dentists, veterinarians, physical therapists, pharmacists, registered professional nurses, licensed practical nurses, licensed midwives, podiatrists, optometrists, opticians, engineering and land surveyors, architects, landscape architects, public accountants, shorthand reporters, psychologists, social workers, massage therapists, occupational therapists, dieticians and nutritionists, speech language pathologists and audiologists acupuncturists, interior designers, athletic trainers, mental health practitioners and respiratory therapists with certain naming regulations governed by California Corporations Code. Non-Profit Corporations Non-Profit Corporations Non-Profit Corporation - A legal structure authorized by state law allowing people to come together to either benefit members of an organization (a club, or mutual benefit society) or for some public purpose (such as a hospital, environmental organization or literary society). Nonprofit corporations, despite the name, can make a profit, but the business cannot be designed primarily for profit-making purposes, and the profits must be used for the benefit of the organization or purpose the corporation was created to help. When a nonprofit corporation dissolves, any remaining assets must be distributed to another nonprofit, not to board members. As with for-profit corporations, directors of nonprofit corporations are normally shielded from personal liability for the organization's debts. Some nonprofit corporations qualify for a federal tax exemption under § 501(c)(3) of the Internal Revenue Code, with the result that contributions to the nonprofit are tax deductible by their donors. |
Business Entities
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| This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship. Law Offices of Ken Dallara is located in California where he is licensed to practice. He is also registered to practice before the United States Patent Office. His office is located in Southern California |
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