HOW DO I START MY OWN BUSINESS? PART 2 OF 3
In my prior blog on this topic I addressed sole proprietorships and partnerships. In this part two of the series I will address limited liability companies (LLC) and corporations (Corp).
Limited Liability Company (LLC)
A limited liability company is a legal entity that is a bit of a cross between a sole proprietorship, a General partnership and a limited partnership. An LLC is attractive because it is simple, inexpensive to form and it limits the member’s liability for claims to the assets of the LLC. Your individual assets are not exposed to claims against the LLC as long as you maintain proper protocols to keep the business assets and liabilities separate from your personal assets and liabilities. You can have a sole member LLC which, by definition, means you are the only member of the LLC, or you can have more members and the members can be individuals or other entities or a combination of individuals and other entities. All members enjoy the protection of the LLC by limiting each member’s liability to the assets of the LLC. An LLC can be taxed (income tax) as a disregarded entity if it is a sole member LLC (as if it did not exist so it is income to the individual), or if it is a multi-member LLC it can be taxed as a partnership, a corporation or an S-Corporation. Each has its own tax benefits to which an accountant should be consulted prior to making this election.
Capital Stock Corporations
Corporations are a more complex type of entity that has many flexible options. The common corporation is a stock corporation which for this discussion I am limiting to common voting stock. A stock corporation issues shares of stock to its shareholders in proportion to their ownership interest in the corporation. One person can own 100% of the shares of the stock. A corporation does have officers, usually a President, Vice President, Treasurer and Secretary that operate the company; the number of officers can vary and be as few as one person filling more than one office. It also has a Board of Directors to whom the Officers answer (and the Board can have as few as one Director). Because the complexities and variations of corporations are so numerous, as well as the various tax elections, it is not a topic that can be covered in a Blog. Suffice it to say, if you are interested in a corporation, you should consult with your attorney.
Watch for part 3, the final part of this series.
“When results matter, experience counts”