LLC LLP Corporation: Everything You Need to Know
Deciding between an LLC LLP corporation? Corporations are separate business entities from owners, who then become shareholders. 3 min read updated on February 01, 2023
What is LLC LLP Corporation?
Deciding between an LLC LLP corporation? Corporations are separate business entities from owners, who then become shareholders. LLCs and LLPs are often examples of businesses that have multiple owners. Single-owner businesses can be sole proprietorships or single-member LLCs.
Advantages of LLC LLP Corporation
By design, LLCs and LLPs are stronger options for smaller companies that are not ready or willing to deal with the concerns of larger companies. These business structures are easier to form and manage.
Frequently Asked Questions About LLC LLP Corporation
Which company structure is the best option?
When comparing LLCs, LLPs, and corporations, picking the one that is best is based on your needs. All three options offer protections for your private assets. However, each form has its own advantages and disadvantages. LLCs are a good general option to give yourself and your partners some protection within specific conditions. LLPs are a good alternative to LLCs if you and your partners are likely to act independently in business operations. Corporations offer the most flexibility in terms of taxation and protection. However, a corporation is likely the hardest of the three to start.
Why would I choose a corporate structure over an LLC or LLP?
One of the strongest benefits that a corporation can offer you is protection for your personal assets. Unlike other business forms, forming a corporation creates a completely separate entity. This entity is essentially responsible for its actions, meaning that it can be sued without you being sued directly. This gives you the most protection since there are strict guidelines for your corporate liability protections to be revoked. Essentially, you have to use the corporation to commit a crime to lose your liability protections. Corporations also come with other benefits such as the ability to change how taxes are filed, which gives it more flexibility to resolve specific taxation issues.
C corporations are the standard form of a corporation that is created by default when you try to form any corporation. Every corporation is formed as a C corporations until it is changed. C corporations offer greater liability protections for shareholders than LLPs and LLCs since shareholders are, for the most part, not responsible for the business' debts and obligations. Corporations can choose to change their form to an S corporation by electing to do so on the appropriate IRS forms.
S Ccorporations have the same protections as C corporations. However, they have different advantages and disadvantages. In terms of advantages, S corporations can be taxed as pass-through entities, which means that they do not pay corporate taxes and that results in more money for the shareholders. S corporations are limited in their number of shareholders, which cannot exceed 100. Both versions of a corporation have strenuous reporting requirements, and missing those requirements will result in an S corporation immediately defaulting back to a C corporation.
How do I create an S Corporation?
To form an S corporation, you have to follow the same process as forming a C corporation, but with one additional step. You must first create your corporation's Articles of Organization and fill out the appropriate forms for the IRS. When you are ready to form your corporation, check with a legal professional to make sure that everything is ready. Then, file your forms with the state during the appropriate filing time. This will create a C corporation.
Once your corporation is established, then you can elect S corporation status with the IRS, which will turn your C corporation into an S corporation. If done correctly, your transition will be approved for the year that you filed in, and you will stay an S corporation for as long as you meet the requirements and continue to keep your paperwork up to date.
Steps to Forming a Business
1. Find the state website for starting a business in your state.
- Most states have online portals where it is easy to register your business.
2. Create the necessary business formation documents. This includes:
- Partnership or operating agreements
3. Have an experienced attorney create or review the documents to ensure compliance with legal guidelines.
If you need help starting an LLC, LLP, or corporation, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.