As opposed to DBAs, or doing business as, the owners of limited liability companies, limited partnerships, and corporations are generally only liable up to the amount they invested in the business. Creditors and plaintiffs can’t go after the owners’ personal assets. This means that your home / car / art collection could be safe.
If protecting your personal finances is of interested to you, you will need to chose which legal structure is right for you. An experienced business attorney can help you decide and look at the various factors, including taxes. For example, are taxes paid before or after profits are distributed to owners? How does selling the business potentially affect them? Knowing the answers to these questions are important, as switching business structures down the road can be a challenge.
Limited and limited liability partnerships.
A limited partnership is a pass-through entity — all profits, losses, credits, and deductions flow through to each member’s individual tax return. With a limited partnership, only owners with active control of the business, known as general partners, are liable. Limited partners, those who have only put up capital and stay out of company affairs, have liability protection.
In a limited liability partnership, all partners generally share management responsibility and have liability protection. Many professional practices, such as doctors, lawyers, and accountants, form LLCs.
Often used with companies that intend to go public, with a C-Corp, there is no limit on the number of C-corp shareholders, each of whom can normally trade that stock freely.
An S-Corp is a pass-through entity and avoids the double tax bite, like the LLP. One S-Corp advantage is that it’s easier for owners to sell the business outright and yet the S-Corp retains some of the features that make a corporation attractive (liability protection, freely traded shares, and the distinction between profit and wages)..)
Limited liability company.
Like an S-corp, an LLC combines the pass-through nature of a partnership with the corporation’s liability protection. However, an LLC is much more flexible than an S-corp. An LLC can also set its own terms for distributing income among members–unlike a corporation, it doesn’t have to treat all investors equally.
For more information on which business structure is the ideal choice for your small business, contact the experienced attorneys at Hart, Watters & Carter today.