The benefits of operating your business as an authorized limited liability entity are numerous, and different for each entity. Selecting the particular entity for your business should be part of your initial planning and discussed with your legal and accounting advisors. Not operating as an authorized business entity could expose you, your partners and your employees to personal liability for your business’ actions.
States have long recognized corporations (Inc., Corp. or Company) as legal entities authorized to conduct business that can limit the liability of their employees and owners (shareholders). With the exception of certain professionals, when properly authorized and operated, a corporation limits your liability to your investment, absent your committing wrongs individually or agreeing to be personally liable for a business debt. The state authorizes you to operate as a corporation, you register with the county where you are located, and you let the world know your business is a corporation. Corporation law is long established and well understood.
More recently, other limited liability entities with more flexibility have been authorized. Limited liability companies (LLC), limited liability partnerships (LLP) and professional corporation (P.C.) provide the same limited liability protection, but require less paperwork and provide greater creditor protection for their owners. Many of the corporate formalities are not necessary, but proper documentation, business operation and public representation are still required. These entities are often preferred for single purpose entities, investment vehicles and businesses with limited employees and expenses.
Both can be established to allow the pass through of income and losses to your 1040 income, preventing tax at the business and individual level. Both can allow different types of ownership, such as non-controlling members or non-voting shareholders. And, both can be designed to benefit any size businesses. Operating your business as a recognized entity requires little work or expense, but not doing so could have serious consequences.
Brooks, Tarulis & Tibble, LLC has long represented business and business owners from inception through dissolution or sale. If we can assist you or your business, please call us.