In the United States under the various states’ business laws, there are a number of legal forms for a business to take at the start of its existence. Many of these forms provide for various levels of liability for the people involved and are quite different from each other. Two of the more common forms of business are “partnerships” and “corporations.”
First of all, the term “corporation” refers to a business that usually involve multiple people and seeks to sell shares to investors in order to sustain itself and expand. Partnerships also involve more than one owner. These owners share both the profits of their labors and any and all liability. The biggest difference between a corporation and a partnership is the liability faced by those running and owning the company.
Corporations provide their members a considerable degree of protection from liability. Generally speaking, a stockholder in a corporation is not at all liable for the actions of the corporation, even when the corporation is directly sued. Granted, the profits and dividends may be less as a result of damages paid out but the shareholder’s bank account will not be affected negatively, just less money will be going in. Partnerships, on the other hand, do not offer limited liability protection. Fortunately for those who seek to enter into partnerships, there are limited liability partnerships. This type of partnership applies for partnerships that have multiple partners licensed in a business area, like a CPA or a lawyer.
Partnerships provide no liability protection and limited investment opportunities but they are easy to set up and don’t require extensive tax reporting. The taxes paid out by the partners are based on their own income, tax levels, and percentage of ownership in the partnership. Corporations, on the other hand, are very complicated when it comes to taxes and are less easy to set up
For those who want the ease of taxation combined with limited liability, the “limited liability company” is the ideal compromise. If there is a spectrum between the two business forms, the LLC falls as close to the middle as one can get. It provides the benefits of liability protection enjoyed by corporations but also the “pass-through” taxation and flexibility of a partnership.
The LLC or limited liability company has undergone some changes in recent years. Now, most states allow an LLC to have only one member whereas the rule used to require at least two people. The reason for this change has mostly to do with changes in the IRS rules and regulations.
The Minneapolis business lawyers [http://www.skjold-barthel.com] of Skjold Barthel are available to answer any questions an individual may have about business formation and the various forms of company structures.