A friend attended a seminar on the advantages of being set up as a limited liability company. The speaker apparently said LLC’s dont pay taxes?(speaker also wanted to sell you his program for $3000)I currently am incorporated(S-corp). Anyone know the real advantages of C-corps, S-corps, LLC, partnerships, etc…? Thanks-J
Here’s a little bit of info. I have encountered many LLCs in the last few years; I think you may need to reinvent yourself to go from S to LLC.
LLCs are governed by state law. Get your information locally, preferably from somebody who knows what they are talking about like a lawyer or CPA.
Lex Non Favet Delicatorum Votis
As a property manager who has to interface with several different ownership entities, I might be able to shed some light:
Individual Owner = 1 person owning the property (very rare)
- Can act alone
- Unlimited liability to which the owner is exposed
General Partnership = 2 or more equally & separately responsible as a partner
Limited Partnership = a general partner & 1 or more limited partners
- Liability of limited partners is limited to the amount of their investment
- Liability of general partner is unlimited BUT has full authority to run the operation
- To limit liability of general partner is to make it a corporation
- Increased capital because there are more sources of assets
- No double taxation as with corporations
- Unless it’s an LP, partnership’s assets as well as the partner’s individual assets are involved
- Also, other partners may be held responsible for the failures of one partner.
Corporate Ownership = an “artificial” person, articles of incorporation spells out powers, rights, etc.
? For profit or nonprofit ?
- protection of its individual shareholders from liability for corporate acts, meaning liability exposure from a lawsuit is limited to the corporations assets, except in cases of fraud
- double taxation
C Corp = close corporation, has a limited number of shareholders; can only act with the unanimous consent of the board of directors
S Corp = Subchapter corporation, preserves the limited liability for the shareholders but allows them to report losses & profits of the corporation w/out the double tax impact of a prior tax on corporate earnings.
I could go on about institutional ownerships, ownership by pension funds and trusts, government ownerships, REITs (real estate investment trust) and co-operatives & condos but many of these deal strictly with real estate.
As much as I hate to say this, but when it doubt, ask a lawyer or at least a tax accountant. I hope this helps.
“Quoth the Raven, ‘Nevermore.’”
E A Poe
beatle’s link nailed it pretty well. Since there are a lot of non-clickers on the board, I’ll recap. LLC’s work the same tax-wise as an S-corp - profits and losses are passed through to owners rather than taxed at the corporate level. The main advantages of an LLC over S status are the looser restrictions on number of shareowners, ownership of subsidiaries and that sort of thing.
It is a fairly recent development as fewer and fewer people were willing to be members of General Partnerships. (At large law firms, you’ll find that if it is still a partnership it is often “composed of professional corporations.” Almost all accountancy firms of any size have done the LLC conversion). In most cases, it’s not worth the hassle to reincorporate from S to LLC status. If you get that 36st investor or decide to have multiple classes of shares, you may want to look into it.
But, and this is important, don’t pay some shyster at a hotel seminar 3 grand to do it. Any qualified corporate attorney will do it for a fraction of that cost, depending on the size and nature of the business.
DISCLAIMER I am neither an attorney nor a tax advisor. I highly recommend professional advice on this subject if a change is contemplated.
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