The limited partnerships is easier to attract investors as they are only liable for their total amount of their investment into the business but limited partnerships are mainly suited for investment groups. With the S corporation the shareholders must only be individuals and no shareholder can be a non-resident alien in the U. S. A Limited Liability Company (LLC) is composed of one or more individuals or entities through a special written agreement. The agreement includes provisions for management, ability to assign interests, and distribution of profits and losses.
Limited liability companies can engage in any lawful for profit business or activity, but filing with the Office of the Secretary of State is required. An LLC is generally treated as a partnership for federal income tax purposes but owners can choose to be taxed as a corporation if that is what they desire. Accordingly, the LLC itself is not subject to federal income tax, and all of its income, gain, loss, deduction, and credit are passed through to its members. You must pay income taxes on all net profits of the business, regardless of how much they actually take out of the business each year.
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Even if all the profits are kept in the business checking account to meet upcoming business expenses, you must report your share of theses profits as income on your tax returns. An LLC can be advantageous for a small to midsized business. That’s because LLC are ideal ways to provide protection to partners and investors, but it doesn’t allow for public offerings and stock sales that help companies raise large sums of capital for national and international growth the way corporations do. Any types of person- whether an individual or an entity- may be a member of an LLC.
There is no minimum or maximum number of LLC members. Members receive the same liability protections as corporate shareholders and officers, while they receive the tax benefit of having company profits and losses taxes as part of their individual taxes. A C corporation is subject to an entity-level federal income tax on its income, and amounts distributed to shareholders are generally subjected to an additional federal income tax at the shareholder level. Accordingly, income earned by a C corporation Business Law 2 By magma_happy Losses incurred by a C corporation do not pass through to its shareholders.
Shareholders do not receive a direct tax benefit from a C corporation’s losses, as may shareholders in an S corporation or members in a LLC. Shareholders are typically not liable for the debts of the corporation. The main advantages of the corporation is the owners of the business enjoy limited liability for the business’ debts, Judgments and other liabilities. However, the main disadvantages is corporations are more expensive to establish than partnerships or LLC and the paperwork is more complicated. A C corporation is required to file formation documents with the state filing agency, and most states will require annual tenting and bylaws.
Unlike other business forms, the corporate structure allows a business to sell ownership shares in the company through its stock offerings. This makes it easier to attract investment capital and to hire and retain key employees by issuing employee stock options. But for businesses that don’t need to issue stock options and will never go public, forming a corporation probably isn’t worth the added expense. If it’s limited liability that you want, an LLC provides the same protection as a corporation, but the simplicity and flexibility of LLC offer a clear advantage over corporations.
You do have several business structure options for an ice cream company. However, since a LLC will allow for an unlimited number of owners, while receiving the same liability protection as a corporation, and since LLC are pass through taxes, I would recommend this type of structure for you. Just remember that your initial business structure is not set in stone. You can start out as a LLC and as your business grows, you can convert it to a corporation. Please discuss your options among yourselves and feel free to contact me with any questions or concerns you may have regarding this matter. Thank you. Sincerely,