In order to conduct business in the U.S., there are several types of business forms, including Sole Proprietorship, Partnership, Limited Partnership, C Corporation, S Corporation, Foreign Corporation, Limited Liability Company (LLC) and Limited Liability partnership (LLP). Each one has different liability protections and tax consequences.
A corporation is a legal entity separate and distinct from the individual(s) who compose the business. It has rights and abilities similar to those of a natural person. Principal features are perpetual duration, limited liability and easy transferability of interests. In a corporation, stockholders, directors, and officers typically are not liable for their company’s debts and obligations. They are limited in liability to the amount they have invested in the corporation. On the other hand, sole proprietors and general partners in a partnership are personally and jointly responsible for all the liabilities of a business.
Limited Liability Company (“LLC”)
A limited liability company in the law of the vast majority of U.S. jurisdictions is a legal form of business company that provides limited liability to its owners. It is a hybrid business entity having certain characteristics of both a corporation and a partnership. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is often more flexible than a corporation and it is well-suited for companies with a single owner.
Two of the most popular types for business forms are the LLC and the C corporation. The C corporation is a corporation which pays income taxes like a person, and then can distribute income to its shareholders. In the state of New York, for example, a Certificate of Incorporation has to be filed with the NY Department of State in order to form a C corporation. Once it is approved, you will have to draft by-laws and resolutions which govern how the corporation is operated, elect the first Board of Directors and appoint officers to operate the corporation. Also, you will have to apply for an EIN with the IRS.
Similarly, in order to form an LLC, you will have to file Articles of Organization with the NY Department of State. Once it is approved, you will have to draft the Operating Agreement for the LLC which governs how the LLC is operated. Also, you will have to place a classified advertisement in a local newspaper announcing the formation of the LLC, as well as apply for an EIN with the IRS.