Corporations

A corporation is a separate legal entity from its owners, who are commonly called shareholders. Corporations generally shield its owners from liability for the corporation's debts and other liabilities. C corporations must themselves pay taxes on its profits and its shareholders must also pay taxes on dividends they receive from the corporation. S corporations pass their income directly to their shareholders' thus avoiding corporate level taxation. Because U.S. law mandates that the shareholders of corporations must be U.S. citizens and residents, it rarely works for foreign companies and individuals.

Though there once were certain advantages to incorporating in Delaware and Nevada that generally is no longer the case. Our attorneys will work with you both in choosing the right entity for your business and in choosing the right state in which to form it.

Pluses:

• Its owners are generally not liable for the corporation's debts and other liabilities.
• The corporation's profits are not subject to social security and Medicare taxes.
• The corporate entity continues even after the death of a shareholder.
• Great flexibility in selling shares.
• Shareholders may be able to gain tax advantage of being both an employee and a shareholder.

Minuses:

• Usually the most complicated and expensive type of entity to form and maintain.
• C corporations are subject to "double taxation."
• S corporations do not permit foreign ownership.

Limited Liability Companies (LLC)

Limited liability companies have similar liability protection to corporations, but are easier to form and administer and oftentimes provide its owners with substantial tax advantages. Because the owners of an LLC, not the LLC itself, are taxed on the income of the company, LLCs avoid "double taxation." However, like a corporation, an LLC is generally treated as its own legal entity, separate and apart from its owners and this generally protects the owners from company debt and obligations.

Pluses:

• Its owners are generally not liable for the corporation's debts and other liabilities
• LLCs are generally subject to fewer rules and regulations than corporations with respect to how the business will be run.
• LLCs are generally taxed like partnerships, thus avoiding "double taxation."

Minuses:

• Member distributions are treated as self-employment income, regardless of whether employment wages or distributions
• More expensive to create and maintain than a sole proprietorship or Partnership

Partnerships

Partnerships are not separate legal entities from their owners. Absent an agreement between the partners, each partner is liable for all business debts and liabilities, even if incurred by another partner.

Pluses:

• Relatively easy and inexpensive to form and operate.
• Permits multiple party ownership.
• Not subject to "double taxation"

Minuses:

• Owners may have unlimited personal liability.
• Difficult to buy or sell partnership interests.