Corporate Law
The six types of business organizations are proprietorship, partnership, limited partnership, limited liability partnership, corporation, and Limited Liability Company.
Proprietorship
A proprietor (a sole owner) owns the business. If the proprietor wishes to close the business, he/she may do so. Death, loss of business, or bankruptcy can also end the business. The proprietor will have unlimited personal liability. First, business assets will be used to pay debt, and then personal assets can be used to continue to pay for any remaining debt.
Partnership
Partners enter into an agreement, to form a partnership. Partners have unlimited personal liability. The partners are jointly liable for all debts incurred by the business or one of the partners. First business assets will be sold to pay debt, and then personal assets of the partners can be used to continue to pay for remaining debt. This form of ownership is now typically replaced with an "S" Corporation.
Corporation
Parties prepare and file formal legal documents, the articles of incorporation, with the State. The parties must comply with relevant state or federal security statutes or regulations. In order to terminate a corporation, parties must close the business, liquidate the assets, file articles of dissolution with the State Corporation Commission, and distribute all assets per state and federal law. A normal corporation is treated as a separate, taxable entity from the owner(s). Therefore, in the event that the business is sued, the corporation is responsible for all debt incurred, and the owner(s) are not personally liable.
A "C" corporation, such as those listed on the New York Stock Exchange, pays income tax as a Corporation and then distributes dividends to shareholders, who in turn pay tax on the dividends received. It is the vehicle of choice when the company provides company-based medical benefits for employees.
An "S" corporation is limited in the number of shareholders it can have. The Corporation deducts expenses and salaries from revenue received and distribute "profits" to the owners/shareholders. Here income is taxed once.
Limited Liability Company
LLC's may be formed by two or more members, who enter into an agreement. LLCs must file articles of organization with the government of the state. LLCs generally exist for a specified amount of time, and then it is dependent upon state law as to the possibility of extending its existence. The profit of the Company is distributed much the same as with a partnership. The company resembles an "S" corporation but with certain different taxation.
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Steps to Incorporating |
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