Choice of Entity: Should I Incorporate or Form a Limited Liability Corporation (LLC)?
Feb 1st, 2007 by admin
The following is a quick overview of typical entities available in various jurisdictions. We use the State of Oregon as an typical forum.
|
|
Sole Proprietor |
General Partnership |
C Corporation
|
S Corporation |
Limited Liability Company
|
Limited Liability Partnership |
Limited Partnership |
Professional Corporation |
|
Limited Liability |
NO |
NO |
YES |
YES |
YES |
YES |
(1) |
(2) |
|
Double Taxation* |
NO |
NO |
YES |
NO |
NO |
NO |
NO |
(3) |
|
Filing Required to Establish the Entity |
NONE |
NONE |
Articles of Incorporation |
Articles of Incorporation and IRS Form 2553 |
Articles of Organization |
Application for Registration as an LLP |
Certificate of Limited Partnership |
Articles of Incorporation |
|
Cost of Filing for Entity Formation in Oregon |
N/A |
N/A |
$50 |
$50 |
$50 |
$50 |
$50 |
$50 |
|
Number of Owners Limited in Number |
(4) |
NO |
NO |
(5) |
NO |
NO |
NO |
NO |
* “Double taxation” refers to instances where income is taxable both (1) when it is earned by the business entity, and (2) when distributions are made from the business entity to its owners.
(1) A limited partner will not generally be held liable for the obligations of a limited partnership unless the limited partner is also a general partner or participates in the control of the business. (ORS 70.135). However, a general partner in a limited partnership has the same liabilities as a partner in a general partnership. (ORS 70.185).
(2) A shareholder who is licensed to render the specified services of a professional corporation will generally not be held liable for acts committed by employees or unlicensed shareholders of the corporation. However, licensed shareholders can be held liable for acts committed by other licensed shareholders of the professional corporation, when those acts constitute professional services provided on behalf of the corporation. (ORS 58.185).
(3) A professional corporation may be taxed as either a C corporation or an S corporation, depending on the tax election made by the business. If the business is taxed as a C corporation, it may be subject to a flat tax rate.
(4) A sole proprietorship must have one and only one owner. If two or more “sole proprietors” are effectively the owners of one business, and have not filed with the Oregon Secretary of State as another entity, the entity will be considered a partnership under the law.
(5) A corporation may not elect for S corporation status unless it has 100 or fewer shareholders, who must all be individuals, estates, certain types of tax-exempt organizations, or certain types of trusts. There are many other substantive issues regarding a S Corporation election that requires review by a qualified legal, tax and financial professional.