Have you ever wondered what those letters and abbreviations you see behind business names stand for? They are business formations meaning they help define the nature, taxation, and overall financial structure of a company. If you are planning to open your own business, you will need to define it as an L.L.C., L.L.P, or Inc. Today’s post will help to define the differences between the three main types of business formations.
L.L.C. – Limited Liability Company
An LLC is a company that blends parts of a partnership and corporation structure. LLCs combine the liability nature of a corporation and the taxation structure of a partnership company. LLCs have less corporate regulations like a Board of Directors or necessary shareholders meetings. LLCs also have fewer ownership restrictions and have more choice in deciding a tax structure. LLC and LLPs are considered “pass through” tax entities, meaning that taxation is levied through the income tax of the owners as their profits are considered the income of the individuals. LLCs, like corporations, allow the benefit of separating the proprietor’s personal and business assets. This means that any personal assets not invested in the LLC will not be at risk of loss in case of bankruptcy.
Decision-making is a huge part of being an entrepreneur and, eventually, a start-up business owner. One of the decisions you have to make during this often challenging process is to settle on a specific business entity to operate. An S corporation is one option you can go with. 1800Accountant.com, a partner of MyCorporation, recommends understanding the following information about how S corporations are structured and taxed before choosing to set one up.
The term “S corporation” originally took on its name from Subchapter S of Chapter 1 in the federal Internal Revenue Code. In general, an S corporation does not pay federal income taxes at the corporate level. However, this does not mean it is exempt from paying taxes altogether. The difference with this type of business entity is that it elects to have its profits, losses, deductions, credit, and all other activities passed through to the shareholders who are invested in the company. These shareholders must report this financial activity on their personal income tax returns. Continue reading →
Before you receive the hard-earned title of being a newly crowned business owner, you must weigh the different types of business entities available to you. Each entity is designed uniquely when it comes to how the IRS treats it. Considering the tax obligations that apply to each entity is a must to make a wise business decision. 1800Accountant.com, one of MyCorporation’s partners, offers a few pointers to consider on how LLCs are structured and taxed. Continue reading →