Common Forms of Business Formation

James T. Murray, III, CPA, LLC, a Mobile accounting firm has helped many businesses simplify the incorporation and business formation process. Below are some popular entity types for businesses. Each entity selection choice has tax advantages and disadvantages that must be considered before making a decision for your business. We invite you to call J.T. Murray, CPA a call at 251-461-2240. We'll help answer your questions about how to minimize your taxes and incorporate your business.

Limited Liability Partnership (LLP)

A limited partnership is comprised of general partners and limited partners. The general partners have management authority and personal liability for obligations of the limited partnership. The limited partners are cash investors and have no management authority. The limited partners have limited liability only for the amount invested in the limited partnership. The limited partnership is not a separate taxpaying entity and is often formed with a C corporation or S corporation as the general partnership.

Limited Liability Company (LLC)

An LLC must file Articles of Organization with the Secretary of State in order to be formed and it requires an organizational agreement similar to a partnership agreement. The owners or members of the LLC are shielded from personal liability for the obligations of the LLC. The LLC may be taxed as a partnership so income and deductions are reported by its members on their respective individual income tax returns.

Corporations

A corporation is a separate legal entity. Its owners or shareholders have no personal liability for the obligations of the Corporation. The disadvantage of a traditional corporation (C corporation) is double taxation since tax is both paid on corporate income and again when shareholders pay income tax on dividends.

To avoid double taxation, corporations that qualify make a special S election to be taxed only once. These corporations are known S corporations.

C-Corporation

• Double taxation - Corporation taxed on its income; shareholders taxed on distributions or dividends from the corporation
• Separate legal entity distinct from shareholders
• Offers good asset protection

S-Corporation

• Must meet certain requirements or risk being treated as C Corporation
• Separate legal entity distinct from shareholders
• Corporation will not be taxed, but shareholders report tax on individual returns
• Offers good asset protection

Call us at 251-461-2240 to help you determine the best structure for your business.