When starting a new business, or formalizing an existing business, there are multiple types of business entities to choose from to fit your company’s needs. Please keep in mind that each entity type has a specific filing document and fee associated with it. Additional documents and licenses may be required in certain state. The following is an overview of each formation choice. We strongly encourage you to carry out research as to which business entity is right for you. Prime Path Financial is not a law firm and does not provide legal advice. If legal advice is required, please seek the services of an attorney.
Limited Liability Company (LLC)
Like a corporation, this type of formation provides limited liability protection to their owners. This means that LLC owners are typically not held personally responsible for business debts or liabilities. LLCs also provide pass-through taxation, like partnerships, so income is reported on the owners’ personal tax returns and any tax due is paid at the individual level.
C Corporation (C Corp)
This is the business type of choice for venture capitalists when they provide funding to a business. Why? Because C corporations are more flexible than S corporations in terms of the number of owners (shareholders) they can have and who can be an owner.
S Corporation (S Corp)
Election S corp status with the IRS provides the benefit of pass-through taxation of a corporation’s profits. S corps still need to file a corporate tax return, but don’t pay taxes at the corporate level. Profits are passed-through to the individual shareholders, who then pay taxes on these profits on their personal tax return.
The benefits of a General Partnership include ease of creation, low cost of operation and few ongoing requirements. Owners of a General Partnership have unlimited liability, which means owners are personally liable for legal claims and debts against the business
Similar in many ways to a General Partnership, an LP offers limited liability protection to their limited partners, also referred to as “silent partners.” General partners are still subject to unlimited liability when it comes to legal claims and debts against the business.
Limited Liability Partnership (LLP)
All owners (partners) of an LLP typically enjoy the benefit of limited liability protection – meaning they are not personally responsible for the debts and liabilities of the business or practice. In this regard, LLPs resemble LLCs – although LLPs are often required to have insurance policies to cover personal liablitiy.
Incorporating as a nonprofit gives you limited liability protection. It can also lend additional credibility to your organization, as others may perceive you as “more legitimate”, because you have taken the steps to formalize your nonprofit with the state.
Professional Corporation (PC)
This is a C Corp or an S corp that is organized to provide professional services in industries that require a state license in order to practice. PCs enjoy many of the same advantages as C corps and S corps, respectively. Some states have other names for professional entities, such as a Professional Association (PA), or Service Corporation (SC).
Professional Limited Liability Corporation (PLLC)
This is an LLC that is organized to provide professional services in industries that require a state license in order to practice. As you might expect, a PLLC enjoys many of the same benefits as an LLC. Some states have other names for professional entities, such as a Professional Association (PA), or Service Corporation (SC).