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FAQs
LLC
WHAT IS AN LLC AND WHO SHOULD FORM ONE?
LLC PROTECTION
CORPORATION
WHAT IS THE DIFFERENCE BETWEEN A C & S?
A Corporation is a legal entity governed by state law, that exists separate and apart from those individuals who created it. It is an invaluable asset protection tool because it shields all of its participants from liability for the debts of the business. Properly structured, a corporation can provide the maximum protection against liability from third parties while offering the most attractive tax benefits to the owners of the business.
ADVANTAGES
- Limited Liability – investors risk only the amount of their investment and are not individually responsible for corporate obligations. Similarly, directors, officers and employees are not personally liable for corporate obligations unless in violation of law.
- Separate Legal Existence – a corporation is a legal entity separate from the people who manage and work for it, or participate in its activities-a legal “person,” capable of entering into contracts, incurring debts, receiving and maintaining funds, and, generally, doing anything a real person can do.
- Centralized Management – business is managed by a board of directors and by elected officers. The owners of the business are the shareholders, who contribute cash, property, or services in exchange for their ownership rights, evidenced by share certificates.
- Continuity of Life – a corporation has the power to exist forever and, therefore, is unaffected by the death of an owner or manager or by the transfer of ownership interests.
- Capital Generation – may sell common or preferred stock, issue bonds, and borrow money, mortgage assets, or contract for many types of financing.
More tax deductions and tax planning benefits available than to the unincorporated business. Has the ability to use a different fiscal year end other than December 31, which can create awesome tax advantages.
Fewer IRS Audits.
A business can offer its owners and employees a variety of fringe benefits, which may be wholly or partially tax-free or tax-deferred.
LIMITED PARTNERSHIP
WHAT IS A LIMITED PARTNERSHIP?
A Limited Partnership has at least one General Partner and at least one Limited Partner. The General Partner is responsible for managing the day-to-day partnership business, and can either be an individual person, an LLC or a Corporation. Because the General Partner makes decisions that affect the business, the General Partner is fully responsible for the debts and liabilities of the business. You can choose to form another entity (such as an LLC) to serve as the General Partner and take on all liability instead of having individuals take personal responsibility. All General Partners share in the profits and losses of the business.
The Limited Partners are sometimes referred to as “silent partners” because they are passive owners who are not involved in the management of the business. Therefore, a Limited Partner’s liability is limited to that partner’s investment in the partnership. Limited Partners can limit their liability, yet still benefit by investing in the business to obtain a share of the profits as the business grows.
LPs are pass-through entities for tax purposes, which means the business income tax is passed through to individual partners according to their share of the business. LPs are required to file IRS Form 1065, and issue K-1s to the partners.
Some states also provide the option of filing a Limited Liability Partnership, which combines the characteristics of a partnership and a corporation. Therefore, all partners are considered Limited Partners with limited liability, and all Partners can participate in the management of the business.
ADVANTAGES
In addition to registering the Limited Partnership (or Limited Liability Partnership) with the state, you will need a Partnership Agreement and other appropriate documentation that includes partners’ responsibilities, division of profits and losses among the partners, and includes other key provisions such as when the partnership ends, who will run the business if something happens to the general partner, and what happens if one of the partners withdraws from the partnership.
NONPROFIT CORPORATION
WHAT IS A NONPROFIT CORPORATION?
Nonprofit corporations do share some common attributes with profit corporations-for example, limited liability. However, there are many advantages to forming a tax-exempt 501(c)(3) nonprofit corporation. Tax exemptions, receiving public and private funds, separate and perpetual legal existence, employee benefits, formality and structure as well as many other advantages. To qualify for your federal nonprofit tax exemption, you will want to organize and operate your nonprofit corporation for Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals.
The 501(c)(3) Nonprofit Corporation offers federal corporate income tax exemption under Section 501(c)(3) of the Internal Revenue code. IRC § 501(c)(3) nonprofits must be organized for religious, charitable, educational, scientific or literary purposes. This entity is not only exempt from corporate taxation under federal and state tax statutes, but also eligible to obtain tax-deductible contributions from donors and other benefits not available to other tax-exempt nonprofit organizations.
ADVANTAGES
- Tax Exemptions – eligible for state and federal exemptions from payment of corporate income taxes, as well as other tax exemptions and benefits.
- Receiving Public and Private Funds – eligible to receive both public and private grants.
- Limited Liability – directors, trustees, officers, employees and members are not personally liable for corporate debts or liabilities.
- Separate Legal Existence – a nonprofit corporation is a legal entity separate from the people who manage and work for it, or participate in its activities-a legal “person,” capable of entering into contracts, incurring debts, receiving and maintaining funds, and, generally, doing anything a real person can do.
- Continuity of Life – exists as a legal entity despite changes in management or other corporate personnel caused by the resignation, removal or death of the people associated with it.
- Employee Benefits – the principals can also be employees and, therefore, be eligible for employee fringe benefits.
- Formality and Structure – the formation documents show clear-cut delegation of authority and specific operating rules to run the organization providing procedures for decision-making and dispute resolution.
- Additional Benefits – lower postal rates, cheaper advertising rates, free radio/television public service announcements, lower membership rates offered by the “big box” stores.