Starting a new business is never easy and business formations are sources of stress for many. Others may be in business and wish to change their form of business to decrease liability or take advantage of certain tax laws. Miller & Brown, P.C. offers speed and efficiency in entity formation. From the formation of a partnership to incorporation, we not only help you to form your new business, we also offer guidance and provide ideas to help you attain your goals in entity formation.
A sole proprietor has complete control of all aspects of his/her business and reaps all the profits; however, all of his/her personal and business assets are at risk. The profit or loss of the business is reported on his/her personal tax return.
A general partnership is one where the general partners share in the management and profits of the business according to the terms of their partnership agreement. Each general partner is also personally liable for the partnership obligations and for any tort damages brought on by any of the other general partners. A partnership return must be filed each year as an information return, and each general partner must report his/her share of the profits on his/her individual tax return. In other words, the profits just pass through the partnership to the general partners themselves.
A limited partnership is one where the general partners and the limited partners share in the management and profits of the business according to the terms of their partnership agreement. Any limited partners in a limited partnership are not personally obligated for any partnership liabilities; even though they are liable for their own actions, they are not liable for the actions of their partners. General partners have the same liabilities as general partners in a general partnership. As in a general partnership, a partnership return must be filed each year as an information return, and each general and limited partner must report his/her share of the profits on his/her individual tax return.
Corporations are owned by shareholders who elect directors but retain ownership rights. The directors generally govern and also appoint officers. Those officers manage the day-to-day business operations. The shareholders, directors, and officers are not liable for the debts of the corporation or for any tort damages brought on in the conducting of business. The corporation tax return must be filed annually and the corporation pays taxes on its profits. The individual shareholders are also taxed on their dividends. This double taxation occurs unless the corporation is an S corporation.(Subchapter S coproprations are typically corporations held by a limited number of investors.) There is an incorporation process and the corporation must register with the state.
In a limited liability company, there is an operating agreement that specifies how the company will be managed and how the members will share the profits. Members are generally not at risk as far as personal assets go. Members risk only their investment. There are formation and registration requirements similar to corporate formation and registration requirements. Taxation may be treated like a partnership or like a corporation depending on which the members elect.