Limited Liability Company (LLC)
is a form of business entity that limits the liability of its owners while allowing flexibility in operation and management and passing through its income to its members with no tax at the entity level.
ADVANTAGES of an LLC’s
- Protection of personal assets from business debt
- Profits/losses pass through to personal income tax returns of the owners
- Great flexibility in management and organization of the business
- LLC’s do not have the ownership restrictions of S Corporations making them ideal business structures for foreign investors
- Unlike a Corporation, LLCs are not taxed as a separate business entity. Instead, all profits and losses “pass through” the business to each member of the LLC. LLC members report profits and losses on their personal federal tax returns
DISADVANTAGES of an LLC’s
- LLC’s often have a limited life (not to exceed 30 years in many states) Some states require at least 2 members to form an LLC, and LLC’s are not corporations and therefore do not have stock — and the benefits of stock ownership and sales.
- These lists are not inclusive. For more detailed information, please be sure to speak with a qualified legal and/or financial advisor.
Corporation
The Corporation is a separate legal entity that is owned by stockholders. A general corporation may have an unlimited number of stockholders that, due to the separate legal nature of the corporation, are protected from the creditors of the business. A stockholder’s personal liability is usually limited to the amount of investment in the corporation and no more.
ADVANTAGES of Profit Corporation:
- Owners’ personal assets are protected from business debt and liability
- Florida Corporations have unlimited life extending beyond the illness or death of the owners
- Tax free benefits such as insurance, travel, and retirement plan deductions
- Transfer of ownership facilitated by sale of stock
- Change of ownership need not affect management
- Easier to raise capital through sale of stocks and bonds
DISADVANTAGES of Profit Corporation:
- Double Taxation (Corporate Level and Individual Level)
- More legal formality
- More state and federal rules and regulations
Entities Characteristics
| LLC Limited Liability Company |
Ownership RulesUnlimited number of members allowed |
Personal Liability of the OwnersGenerally no personal liability of the members |
Tax TreatmentThe entity is not taxed (unless it elects to be taxed as a corporation); profits and losses are passed through to the members |
Key Documents Needed for FormationArticles of Organization / Certificate of Formation; Operating Agreement |
Management of the BusinessThe Operating Agreement sets forth how the business is to be managed; a Member (owner) or Manager can be designated to manage the business |
Capital ContributionsThe members typically contribute money or services to the LLC and receive an interest in profits and losses |
Entities Characteristics
| C Corporation |
Ownership RulesUnlimited number of shareholders; no limit on stock classes |
Personal Liability of the OwnersGenerally no personal liability of the shareholders |
Tax TreatmentCorporation taxed on its earnings at a corporate level and shareholders are taxed on any distributed dividends |
Key Documents Needed for FormationArticles of Incorporation; Bylaws; Organizational Shareholder and Board Resolutions; Stock Certificates; Stock Ledger |
Management of the BusinessBoard of Directors has overall management responsibility; Officers have day-to-day responsibility |
Capital ContributionsShareholders typically purchase stock in the corporation, either common or preferred |
Entities Characteristics
| S Corporation |
Ownership RulesUp to 100 shareholders; only one class of stock allowed |
Personal Liability of the OwnersGenerally no personal liability of the shareholders |
Tax TreatmentWith the filing of IRS Form 2553, a corporation becomes a S Corporation, where the profits and losses are passed through to the shareholders |
Key Documents Needed for FormationArticles of Incorporation; Bylaws; Organizational Shareholder and Board Resolutions; Stock Certificates; Stock Ledger; IRS (& sometimes a state) S Corporation election |
Management of the BusinessBoard of Directors has overall management responsibility; Officers have day-to-day responsibility |
Capital ContributionsShareholders typically purchase stock in the corporation, but only one class of stock is allowed |