This type of law includes the purchase and sale of businesses, formation of corporations, partnerships and limited liability companies, contract drafting and most other types of legal issues affecting a business owner. The type of entity in the formation process can take various forms and specific planning. A few of the more common entity types are discussed below.
The Limited Liability Company (“LLC”) is the newest and perhaps most common form of business entity. Unlike the Limited Partnership, which has liability protection for only some of the partners, the Limited Liability Company protects everyone – the members and the managers. The LLC can be taxed as a partnership, a “C” Corporation, an “S” corporation or a disregarded entity (a sole proprietorship).
Another option is a Corporation. Creating a Corporation, usually called a “C-Corporation”, is like creating an artificial person. Corporations are formed under specific state law as separate legal entities who have a distinct tax structure. They pay their own separate taxes at a corporate tax rate instead of a personal tax rate. In addition to the separate tax structure, Corporations have an unlimited life, flexibility in ownership and management structures.
An “S” Corporation is subject to the same filing requirements as a regular “C” Corporation, however it has a pass-through tax status that is similar to a partnership and reports its earnings on the owners’ personal tax return. This requires an election with the Internal Revenue Service (IRS) within a specified period. The election avoids paying taxes at the corporate level, except in some circumstances. However, “S” Corporations have ownership limitations. For example, non-U.S. citizens and other entities cannot own shares in an “S” Corporation and the number of shareholders is limited to 100.