Corporation vs. LLC

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Corporations

A corporation is a legal entity created through the laws of its state of incorporation. State corporation laws require articles of incorporation to document the corporation's creation and to provide provisions regarding the management of the corporation's internal operations. Corporations usually operate under bylaws to define the rights and obligations of the officers of the corporation. A corporation is a legal "person" that can sue or be sued. This gives the business continuous life. The death of an official or stockholder does not change the corporation's structure. Shareholders have legal independence of the corporation's legal debts.

S Corporations

S Corporations get their name from a unique section of the Internal Revenue Service (IRS) code. A corporation can eliminate the disadvantage of double taxation of corporate income and shareholder dividends by applying for S Corporation status. Owners report profit and loss on their individual tax returns. They still have the opportunity to separate and protect their personal assets from judgments against the business.

C Corporation

The Internal Revenue Service (IRS) refers to general corporations as "C" Corporations. Forming a C Corporation allows a business owner to create a separate legal structure that can shield their personal assets from judgments against the business. Unless a corporation applies for S Corporation status, the IRS taxes corporate profits as well as dividends paid.

Limited Liability Company

A Limited Liability Company (LLC) combines the tax flexibility of a partnership with the personal liability protection of a corporation. LLC owners report their share of business profit and loss on their personal tax returns, similar to tax reporting for a general partnership. Forming an LLC can help you separate yourself from your business, protecting your personal assets in the event of a judgment against the company.

Series Limited Liability Company

The Series LLC is a new type of business entity that five States have adopted thus far (Nevada, Delaware, Oklahoma, Iowa & Illinois).

The Series LLC allows a person to form one LLC (the parent LLC) and maintain several cells under this LLC. Each part can be maintained separately, thus effectively producing multiple LLC for the cost of one. Take, for example, a Property Manager in Arizona with four rentals. For each of his/her rentals, they would form a separate LLC to protect each property.

With the Series LLC you would only need to form the parent LLC and put each rental home into a separate part or separate series (i.e.: series A, series B, series C, series D, etc). Each part needs to be operated as a separate business enterprises. Each part (series) should have its own bank account, deposits, rental agreements, etc. All paperwork should have the series distinguished so that it is operating as that series, and not the parent LLC. At the end of the year, all of the separate parts of accounting will be brought together for one tax return.

Because the LLC was registered in another state, all states will allow it to foreign qualify in their state. This will allow you to operate as a Series LLC in states where it has not been adopted by law.

Trusts

Trusts are one of the most common estate planning tools in use today. Because a trust is recognized as a separate legal entity, any assets in the trust will not be subject to probate should a family member die. Almost anything can be placed in a trust, stocks, bonds, real estate, life insurance, personal property. A trust can provide for your beneficiaries long after you've passed away.

Although Acacia Business Solutions is not a provider of trusts, we strongly recommend that our clients consult with a trust attorney regarding corporate shares and/or LLC membership interest being owned by a trust.

Foundations

Foundations are often set up for charitable purposes. A foundation is a type of philanthropic or charitable organization set up by individuals or institutions as a legal entity with the purpose of distributing grants. The distribution of the grants usually supports causes in line with the goals of the foundation. The foundation can also function as a charitable entity that receives grants in order to support a specific activity or activities of a charitable purpose.

There are private unincorporated foundations, and then there is a standard 501© charity, which is government chartered and overseen. There are also private churches that are unincorporated and un-enfranchised.

Do you have additional questions? Feel FREE to contact us!

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