Decision regarding company structure is a decision that a person should make, in consultation with an accountant, and taking into consideration issues regarding taxes, liability risk, management structure, continuity, and operations.
Businesses are created in the following forms:
- Sole proprietorship: The most common and simplest form of business is the sole proprietorship. In a sole proprietorship, a single individual engages in a business activity without the necessity of formal organization. If the business is conducted under an assumed name (a name other than the surname of the individual), then an assumed name certificate (commonly referred to as a DBA) should be filed with the office of the county clerk in the county where a business premise is maintained. If no business premise is maintained, then an assumed name certificate should be filed in all counties where business is conducted under the assumed name.
- General partnership: General partnerships are created when two or more person associate to carry on a business for profit. A partnership operates in accordance with a partnership agreement, but no requirements that the agreement is in writing and no state-filing requirement. If the business of the partnership is conducted under a chosen name (a name that does not include the surname of the partners), then an assumed name certificate (commonly referred to as a DBA) must be filed with the office of the county clerk in the county where a business premise is maintained. If no business premise is maintained, then an assumed name certificate must be filed in all counties where business is conducted under the assumed name.
- Corporation: corporations are created by filing a certificate of formation with the Secretary of State. The Secretary of State provides a form that meets minimum state law requirements.
A corporation is a legal person with similar characteristics of limited liability, management, duration, and transferability of ownership. Owners of a corporation are called ‘shareholders’. people who manage the business and affairs of a corporation are called directors. State corporate law does provide for shareholders to enter into shareholders agreements to eliminate the directors. The best management structure for your corporation is a decision you make with the advice of an accountant or attorney. The State cannot assist you.
- corporation tax act: Contact the IRS or competent tax counsel regarding the decision to be taxed as an S corporation and the requirements for filing the election. This is not a matter of State Government.
- Limited Liability Company: A limited liability company is created by filing a certificate of organization with the State Government you choose to form your LLC. The State provides forms online that meets minimum state law requirements. Online filing of a certificate of formation is provided through irs.as.gov
A limited liability company LLLC is not a partnership or a corporation but rather is a distinct type of entity that has the powers of both a corporation and a partnership. Depending on how the LLC is created, it may be likened to a general partnership with limited liability to members, or to a limited partnership where all the owners are free to participate in the management and all have limited liability, or to an ‘S’ corporation without the ownership and tax restrictions imposed by the Internal Revenue Code. Unlike the partnership, where the key element is the individual, the essence of the limited liability company is the entity, requiring for its creation more formal requirements. 1 William D. Bagley & Phillip P. Whynott, The Limited Liability Company, §2.10, (2d ed. 2d rev. James Publishing, 1995).
Owners of an LLC are called members. A member can be an individual, partnership, corporation, trust, and any other legal or commercial entity. The liability of its members is limited to their investment and they may enjoy the pass-through tax treatment afforded to partners in a partnership. As a result of federal tax classification rules, an LLC can achieve both structural flexibility and favorable taxation.
LLC can be managed by managers or by its members. The management structure is stated in the certificate of organization. Management structures are determined by the LLC and its members. The State cannot give advice about management structure.
Information on this page should not be considered a substitute for the advice and services of an attorney and tax specialist in deciding on the business structure.
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