Limited Liability Company
The limited liability company or LLC is not a partnership or a corporation. An
LLC is a distinct type of business that offers an alternative to partnerships
and corporations, by combining the corporate advantages of limited liability
with the partnership advantage of pass-through taxation.
A corporation is a separate legal and tax entity from the owners. This type of
general, for-profit corporation is referred to as a "C" corporation (referring
to Chapter C in the IRS code). To be incorporated an Incorporator must draft
legal documents and, file the documents with the appropriate government agency
and pay the required fees and taxes. A corporation is owned by shareholders and
is managed and controlled by the board of directors who elect the president and
determine the policies and actions to be taken by the corporation. In order to
maintain corporate status (included limited liability and favorable taxation)
certain simple formalities must be observed in order to keep the corporate
shield in tact. These formalities include, but are not limited to; annual
meeting of the board of directors, the issuing of stock, keeping of corporate
minutes and the appointing of corporate officers.
An "S" corporation begins as a "C" corporation. After the initial filing an
additional form (form 2553) is filed with the IRS to change to "S" corporation
status (referring to Chapter S in the IRS code). There may be additional state
filings required. Once this process is complete, the corporation is taxed like
a partnership or sole proprietorship rather than as a separate entity. This
would result in shareholders' individual tax returns reflecting income
generated or losses accrued by the corporation. Converting to an "S"
corporation affects the tax status but does not generally effect the legal
protection offered by the corporation.
Often a reasonably small salary is paid and a large Schedule K-1 distribution is
paid to the employee/owner to help lower Social Security and Medicare taxe
Non Profit Corporation
A non-profit organization is an organization registered with the IRS on form
1023 declaring federal and state tax exemption under the Federal Tax code
Section 501(c)(3). A non-profit organization is NOT able to issue shares and is
NOT able to pay dividends. When a non-profit organization is dissolved any
assets must be distributed to other non-profit organizations.
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