Dudugjian & Maxey

A Law Corporation
Telephone (916) 786-7272 / Facsimile (916) 786-7306

Which Business Format is Right

For You?

Partnership
Limited Partnership
Corporation
S Corporation
Limited Liability Company



Dudugjian & Maxey has extensive experience in the area of business planning; and although it would be virtually impossible to describe, in this brochure, all of the information concerning the different aspects of the business entities available for business ventures, we want to give you a brief overview, by way of comparison, of the leading organizational formats available.

The following is a partial comparison of the formation, operation and management, liability, tax treatment and termination of Partnerships, Limited Partnerships, Corporations, S Corporations and Limited Liability Companies (LLC).
 

Formation--

Partnership--Needs no documents, papers, filings, or formal procedure to be created; although unexpected results may occur if not done formally.

Limited Partnership--Requires a written document setting forth certain facts which must be filed with the proper governmental authority.

Corporation--Formed by filing articles of incorporation with the secretary of state in the state of incorporation with other organizational documents kept at the principal place of business.

S Corporation--Same as corporations, plus election with taxing authorities.

LLC-Formed by the filing of the proper documents, usually called Articles of Organization, with the proper governmental agency for the state chosen by you.

Operation/Management--

Partnership--Generally operated and managed by its partners equally.

Limited Partnership--Limited partners may not participate in the control of the business without becoming personally liable for the debts and obligations of the limited partnership.

Corporation/S Corporation--Usually has a centralized management hierarchy in the form of a board of directors and corporate officers.

LLC--Does not have to be operated by its members and can instead have centralized management. The LLC can elect officers who operate and manage the LLC, but who are not owners of the LLC. Further, management of the LLC is not necessarily equal among the members but allocated in proportion to the members' capital contributions.

Liability--

Partnership--All general partners are jointly and severally liable for the partnership's debts and obligations. They also have the duty to provide full disclosure and duty to act as a fiduciary to the other partners.

Limited Partnership--At least one partner must be a general partner (can be a corporation) who can be held personally liable for the debts and obligations of the partnership.

Corporation--Protection is provided from personal liability to its owners against third parties for the corporation's debts and obligations, provided the owner does not personally guarantee or accept liability for those debts and obligations and maintains separateness.

S Corporation--Generally, is identical to regular corporations in all respects.

LLC--The members are not personally liable for the LLC's debts and obligations unless the members specifically agree to be liable or the state statute provides for liability by the LLC members.

Tax Treatment--

Partnership--Generally, receive flow-through tax treatment at both the federal and state levels.

Limited Partnership--Generally, receive flow-through tax treatment at both the federal and state levels, however calculation of at-risk differs.

Corporation--Being an entity separate from its shareholders, a corporation is subject to income taxation at the federal and state levels. Further, distributions from the corporation to its shareholders are also subject to taxation.

S Corporation--Receives flow-through tax treatment for federal tax purposes. Thus, all gains and losses are not taxed at the entity level but are passed through to the owners who recognize the gains and losses and are responsible for the taxes.

LLC--Depending upon the state law, a LLC, even it qualifies for federal flow-through treatment, may still be taxed as a separate entity.

Termination--

Partnership--Need not file a document or follow a formal procedure to terminate, however for liability protection, notices are recommended.

Limited Partnership--Limited partners (not general partners) may withdraw and/or assign their entire interest in the partnership at any time without causing the limited partnership to dissolve unless the limited partnership agreement states otherwise.

Corporation--Generally, a corporation automatically continues indefinitely until it is terminated by the filing of dissolution papers with the proper authority.

S Corporation--Is identical to regular corporations, and thus is terminated in the same fashion as a regular corporation.

LLC--Need not terminate but can continue indefinitely if the LLC's structure is set up that way.

Which Business Format is Right for You?

As noted above, each type of business entity can be distinguished from the others in a variety of ways.

It is up to you after consulting with a knowledgeable advisor, to decide which organizational format will best serve your needs

Dudugjian & Maxey is available to assist you in determining the most appropriate business entity for your business venture and in helping you answer the question:

Which Business Format is Right For You?


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