Corporate and Business Frequently Asked Questions
- What is a corporation?
A corporation is a legal entity that is separate from its owners, the shareholders. A major advantage of choosing a corporation is the limited personal liability of the owners for claims against the corporation. In addition, since it is separate from its owners, a corporation has an unlimited life and can have an unlimited number of owners. Since a corporation is a separate legal entity, it is generally subject to an entity level tax.
- What is an S-Corporation?
An S-Corporation is a corporation that has satisfied certain conditions and made a special tax election with the IRS and state Department of Revenue. This tax election allows the income of the corporation to be taxed by the shareholders thereby avoiding tax at the entity level. The income is “passed through” to the shareholders who report the income or loss of the S-Corporation on their own individual returns in a manner similar to a partnership.
- What is a registered agent?
A registered agent provides an in-state address for a business to receive service, or delivery, of legal documents such as notice of any suits, tax notices and so forth. The registered agent will then forward those documents to the out-of-state business office. A registered agent also serves as a local contact for the secretary of state and other governmental agencies.
It is possible for one to act as their own registered agent as long as there is a physical address within the state where you are forming the entity. Generally a P.O. box will not qualify as an “in-state” address.
- What is a LLC (limited liability company)?
A LLC is a separate and distinct legal business entity that offers an alternative to partnerships and corporations by combining the corporate advantage of limited liability with the partnership advantages of pass-through taxation
- What is the organization structure of a LLC?
LLC owners are called members. A LLC may be managed by its members or by selecting managers. If a LLC is managed by its members it operates similar to a partnership where each member has an equal say in the management of the LLC. If the member chooses, they may elect a manager to oversee the affairs of the LLC.
- What is a partnership?
A partnership is a business association of two or more partners (individuals, groups of individuals, companies, and other business entities) to generate a profit. State law governs the creation, organization and dissolution of partnerships. The partners usually have an agreement or contract that governs their relationship. Partners are generally personally liable for the acts of the partnership, the other partners, and its agents.
Partnerships are generally not subject to income taxes as the income passes to the partners who report the results on their personal returns.
- What is a sole proprietorship?
A sole proprietorship is a business entity owned and operated by an individual person. The owner, a sole proprietor, is generally personally liable for all the debts of the business.
- Is there any personal liability for the owner of a corporation or a LLC?
Owners of corporations and LLCs are generally not personally liable for the debts of the business. This usually means that the maximum exposure of the owner is limited to their investment in the business. However, under certain circumstances, shareholders and members can become personally liable for business debts. Using an entity such as a corporation or an LLC will not make an owner “bulletproof.”
- How is a LLC taxed?
A LLC is generally taxed based on the number of owners it has. Absent an election, a single-member LLC is treated as a disregarded entity for income tax purposes. This means the LLC is taxed in a manner similar to the taxation of a sole proprietor.
If the LLC has two or more owners, it is generally treated as a partnership. Partnership income tax rules would apply unless an election is made to treat the LLC as a corporation for tax purposes.
- Does my LLC need an employer identification number?
A LLC with more than one member is generally required to obtain an employee identification number (EIN). A single-member LLC will usually not be required to obtain an EIN. There are exceptions to this general rule, primarily when the single-member LLC has employees.