What are the benefits between being Inc., LLC or LLP?

Answer 1

"Inc." is a corporation. Provided that it is adequately capitalized (enough capital -- usually money -- is put in it so that it has enough money to do the business that you are going to do in that corporation) and the corporate formalities are observed -- you have bylaws, you keep minutes of your annual meetings of shareholder(s) and director(s), you keep the corporation's money separate from your person funds, and generally -- you treat the corporation like a separate entity, then you will be insulated from liability for corporate debts and liabilities.

For example, if the corporation contracts to buy a car, and fails to pay, the seller can recover a judgement against the corporation, but not against the shareholders (owners) or directors, or officers individually. Or, if you have a corportion that leases a store (or owns an apartment building), and someone slips and is injured on a banana peel on the store floor (or steps of the apartment building), so long as you personally did not leave the banana peel there, or know about it and fail to remove it, the injured person can recover against the corporation, but not you (as a shareholder or director or officer) individually. Your limit of liability is to the money or other property that is in the corporation.

A corporation is a taxpayer, and must file tax returns and pay tax. When income is earned by a corporation, the corporation has to pay income tax on that income, at the corporate level. Then when the corporation distributes money to its shareholders, that is called paying a dividend, and the sharehholders have to pay income tax on the dividend. So, the income is taxed twice.

Some corporations will try to get the profits to an owner of the shares by paying them large salaries -- since payments of salaries are deductible to a corporation. They are taxable to the recipient, but they are only taxed once. However, if a salary to an owner of a corporation is too large (in the judgment of the IRS), it will be declared by the IRS to be a "deemed dividend" and taxed twice anyway. IRS Revenue Agents and tax lawyers sometimes disagree on the topic: "How much salary is too much" -- but this is a good problem to have. The tax law cited by the IRS in these situation is a variation of the time honored maxim: "Oh no you don't!!!". Careful business planning with a good CPA can often avoid such problems, using several variations of the time honored maxim: "There is more than one way to skin a cat"..

On the other hand, a corporation can file an "S" election, that is -- fill out and file a form called IRS Form 2553, that you can get from the IRS website., and cause the IRS to tax that particular corporation like a partnership.

A partnership is not a taxpayer, but only a tax REPORTING entity. You still have to file a tax return for a partnership, but the partnership itself does not have to pay income tax. Instead, the income or losses of a partnership, or an "S corporation" "pass through" to the partners, or S corporation shareholders, as if they were partners. This is often beneficial in businesses that will have losses in the start-up phase, since if the losses "pass through" to the shareholders (owners), the losses can be offset other income of the owners, that is, they can be deducted against the owner's other income.

One drawback of S corporations is that only U.S. citizens can be shareholders. They also can only have a limited number of shareholders (75 at present) so they are not good entities to use if someone is trying to "take a company public". S corporations can only have one class of stock. In the "regular corporations (also called "C" corporations) there are sometimes several different kinds of stock, which can be helpful in raising financing. There are some other limitations on S corporations too, but, the foregoing seem like enough for now.

An LLC is a limited liability company. They are relatively recent additions to the laws of the various states. They have been created over the last 20 years or so. They do offer liability protection like a corporation (although the various states have different laws and some are better than others in asset protection).

At the federal level, you can "check a box" on your tax return and elect to be taxed like a corporation (which is rare, but happens sometimes) or like a partnership (therefore, LLC's can be another "pass through" entity, which is more common). LLC's can have foreign shareholders. They can also have more than one kind of "Membership interest" (ownership interests -- like stock in a corporation), so they have more flexibility than S corporations, which attracts some people to choose them over S corporations.

An LLP is NOT a limited partnership, but rather a Limited Liability Partnership.

A limited Partnership is a partnerhip in which there is one or more General Partners, who have the right and obligation to manage and control the limited partnership, but have general liability for debts or other obligations of the limited patnership (sometimes corporations are used as General Partners of Limited Partnerships to make sure that no one has liability exposure, but foir this to really work, the corporate general partner must be "adequately capitalized" -- see discussion above). The limited partners have their liability limited to the amount of their investment in the deal, plus their share of the profits, if any. Limited partners are prohibited by law from managing or controlling the Limited Partnership.

Limited Liability Parterships are very new, and they are partnerships of corporations, or other limited liability entities. They are increasingly being used by law firms and accountancy firms where the members want to have limited liability, but also want a voice in management and control of the organization.

Each of these entities, corporations, LLC's and LLP's are created by the laws of the various STATES, even though they are all subject to federal laws, such as federal income tax laws, if you are interested in using one, you will need to learn about and seek expert advice concerning the laws of the state whose laws you intend to use. The state whose laws you choose to use is not always the state that you live in. For example people in many states use Delaware LLC's and Delaware corporations due to the sensible and beneficial nature of the laws of Delaware.

Selecting the best entity for your use is a topic that should be discussed with a business attorney, or a knowlegable business CPA who can advise you based on your specific facts and circumstances. The foregoing is intended to be an educational answer and not specific legal advice to anyone.

Answer 2

Llc Vs Llp

Answer 3

Llp Vs Llc

Answer 4

It really depends on what your goals are. The LLC structure provides a lot of flexibility and complete liability protection. It's sort of a combination between a partnership and a corporation. The corporation is a little less flexible in terms of how it's structured, but it may easier to liquidate a smaller position. An LLP is a limited partnership: you have a limited partner who has liability protection but must not be an operating partner, and a general partner, who is the operating partner but does not have liability protection -- unless the general partner is an LLC or corporation.

But again it really depends what your goals, plans and needs are, as well as your state tax laws.

Answer 5

The best benefits will have to be determined by you -- what are your plans? Your goals?

Research, research, research – this cannot be stressed enough. Read as much as you can. Here are some book titles that are relevant:

* Ultimate Book of Forming Corps, LLCs, Partnerships & Sole Proprietorships by Michael Spadaccini
* LLC or Corporation?: How To Choose The Right Form For Your Business by Anthony Mancuso
* Legal Guide For Starting & Running A Small Business (8th Edition) by Fred S. Steingold

There are plenty of free informational resources out there. Check the source box for links to articles & sites.

Hope that helps! I wish you much success & happiness in all your ventures!

Answer 6

A separate line of business credit so if your company goes bankrupt you don't have to as well, also protects you from lawsuits only the company can be sued not you personally.

Answer 7

Yes, it's possible

Answer 8

Valuable topic, just what I was looking for.