Business Formation

Whether you want to form a corporation, limited liability company, general partnership, limited partnership, subchapter S corporation, or an IRS qualified nonprofit 501(3)(c) organization, our office can assist you. We can also provide you with advice as to the most beneficial entity from an operational, personal liability, and tax perspective, for your particular business plan. The various types of business entities and their general advantages and disadvantages are described below.

Corporations

The "C" corporation is the best known form of legal entity. Shareholders enjoy limited liability to the amount of their capital contribution (unless a court "pierces the corporate veil"). Corporate stock is generally freely transferable. The disadvantages include the need to observe corporate formalities in both the creation and management of the corporation, and the likelihood of double taxation (the corporation is taxed, and then dividends that are distributed to shareholders are taxed personally to the shareholder).

Limited Liability Company

An LLC is a relatively new entity that is a hybrid between a partnership and corporation. Liability of all members is limited to the capital they contribute, and taxes are passed through to the individual members eliminating the problem of double taxation. Interests are freely transferable. Today, this is a very popular form of business entity.

General Partnership

The partners have unlimited liability for the partnership's debts. Tax liability is passed through to the partners (the partnership does not pay taxes, but must file an informational tax return with the IRS). Minimal formalities are required for the formation and minimal government reporting is required, but the unlimited liability aspect make this form of business entity less attractive.

Limited Partnership

The form allows partners to avoid some of the disadvantages of the general partnership form. A limited partnership must have at least two partners, and must have at least one general partner and one limited partner. The general partner has unlimited liability and the limited partner is a "passive" investor with liability limited to the amount invested. Profits and losses are passed through to the partners for inclusion on their individual tax returns. Limited partnership interests are transferable with relative ease.

Subchapter S Corporation

A Subchapter S Corporation is a corporation which has elected to be taxed similar to a partnership and has adhered to certain strict requirements to obtain that treatment. To qualify, the Subchapter S must have less than 75 shareholders, all of whom must be non-alien individuals, estates, or certain defined trusts. A corporation, partnership or LLC cannot be a shareholder. With the advent of the LLC this entity is less often used, but can be beneficial in some circumstances and is easily converted to a C corporation.

501(c)(3) Nonprofit Corporation

Forming a nonprofit corporation is much like creating a regular corporation, except that nonprofits have to take the extra steps of applying for tax-exempt status with the IRS and their state tax division. Once the tax exempt status is approved, the nonprofit corporation's income is non taxable. 501(c)(3) exemptions apply to corporations organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.