Following are questions and answers
concerning business formations arranged in what we believe is
a logical sequence. Additional questions and answers are added
regularly, so please visit our site often. Please feel free
to make copies for non-commercial purposes.
Q:
What is a corporation?
A:
A corporation is an artificial person or legal
entity created under state law. The law treats a corporation as a
person which can sue or be sued. The corporate entity is distinct from
the persons who own the shares issued by the corporation. The shares
evidence ownership. Corporations survive the death of the
shareholders.
Q:
What are some of
the primary characteristics of corporations?
A:
Generally, there is no personal liability for
the shareholders for the debts and obligations of the corporation.
The corporation is taxed as a legal entity and shareholders are
taxed on dividends that are distributed to them.
There can be an unlimited number of shareholders and various
classes of stock issued such as voting and non-voting.
Corporations are managed by a board of directors elected by the
shareholders.
Corporations may have a single shareholder.
Q:
How do S
corporations differ from other corporations?
A:
The profits are passed through to the
shareholders and taxed at that level.
Only one class of stock is allowed and a maximum of seventy
five shareholders is permitted.
Q:
What is a sole
proprietorship?
A:
A sole proprietorship is ownership of a business by
one person.
Q:
What are
some of the primary characteristics of sole proprietorships?
A:
The owner has unlimited personal liability for
the debts and obligations of the business.
There is no entity to be taxed. All income and losses are
passed through to the owner.
They are simple and inexpensive to form.
Q:
What is a
general partnership?
A:
A general partnership is a business owned by two or
more persons that is not organized as a corporation, limited
partnership or limited liability company. It is an association of two
or more persons to carry on as co-owners, a business for profit.
Q:
What are some
of the primary characteristic of general partnerships?
A:
General partners have unlimited liability for
the debts and obligations of the partnership.
The entity is not taxed. All income and losses are passed
through to the partners.
There can be an unlimited number of general partners.
Q:
What is a
limited partnership?
A:
A limited partnership is a partnership
consisting of one or more general partners who manage the business
and who have unlimited liability for the debts and obligations of
the limited partnership, and one or more limited partners who
contribute capital and share in profits and losses, but who do not
participate in managing the business, and have no liability for
partnership debts and obligations beyond their investment of
capital.
Q:
are some of the
primary characteristics of limited partnerships?
A:
Limited partnerships are not taxed. All income
and losses are passed through to the partners.
There can be an unlimited number of general and limited
partners.
Q:
What is an LLC
or limited liability company?
A:
It is a hybrid business entity that combines the
limited liability advantages of a corporation with the tax treatment of
a partnership.
Q:
What are some
of the primary characteristics of an LLC?
A:
An unlimited number of members is permitted.
LLCs can be formed with a single member.
They are managed in accordance with an operating agreement.
