Limited Liability Companies

The limited liability company, or “LLC”, is a relatively new business structure and is governed by the laws of the state where the LLC is created. In most states, organizing a LLC is very simple and usually includes just filling out a one page standardized form and paying a filing fee. Probably the most appealing aspects of an LLC are the fact that members are not held personally liable for the debts and acts of the LLC and that the LLC enjoys pass through taxation status. Specifically, the member will only be taxed once on distributions and earnings. Further, the administrative aspects of a LLC are much less cumbersome than that of a corporation.

Corporations

The final option for individuals that go into business can organize as a corporation. The corporate structure is often chosen because it is a legal entity that is separate and apart from its owners and managers. As a distinct legal entity, a corporation can sue and be sued, own property and convey property in its own name, and issue stock to shareholders. In addition, corporations offer owners (shareholders) and managers (directors and officers) personal liability protection when it comes to the debts and acts of the corporation. The administrative requirements for a corporation include filing articles of incorporation and bylaws with the state you are incorporating in. Further, corporations can exist in perpetuity, has centralized management (board of directors), and has increased freedom in transfer of ownership with the buying and selling of stock in the corporation. In most states, corporations are required to hold an annual shareholder and directors meeting to fulfill the states reporting requirements.

Summary

The bottom line in a business organization situation is what makes administrative, financial and legal sense. Each business structure has its own benefits and drawbacks and that is where sound legal and tax advice is crucial before embarking into any business venture.

(Note: The above should not be taken as legal or tax advice. It is offered as an overview of basic business structures and organizations)

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