Entity Formation Attorneys
Entity Formation Lawyers
A business entity is a commercial, corporate and/or other institution that is formed and administered as per commercial law in order to engage in business activities, usually the sale of a product or a service.
In the United States, a business entity can be structured under different types of incorporation:
- Sole Proprietorships
- Limited Liability Company
Sole Proprietorships – are simple business structure for businesses formed by two or more individuals who share management and profits. The two most common are general and limited partnerships. Each partner has joint and several liabilities to the partnership which means any particular partner can be liable to pay entire debts of the partnership irrespective of the extent of participation in Profit and Losses or capital contribution into the partnership. One of the major advantages is a partnership doesn't pay tax on its income but "passes through" any profits or losses to the individual partners.
Partnerships – are also relatively inexpensive to form. Partnerships are formed by two or more persons or any business entity who make an agreement to share profits and losses. Each partner has joint and several liabilities to the partnership which means any particular partner can be liable to pay entire debts of the partnership irrespective of the extent of participation in Profit and Losses or capital contribution into the partnership. Taxation is more complex, but the partnership itself pays no taxes; it is only required to file an informational return to the government to report what the profits and losses of the partnership were and how these were allocated to the partners. A partnership ceases to exist in case of the death or bankruptcy of a partner or when they decide to terminate the partnership.
Limited Liability Companies or LLCs - is a separate and distinct legal entity. Such types of entities are highly flexible, and can be used for a various types of nature of business. The primary advantage of an LLC is that its owners, known as members, have "limited liability", meaning that, under most circumstances, they are not personally liable for the debts and liabilities of the LLC. Depending on state law, an LLC can have the same limited liability for members as a corporation, or have some members with limited liability and some without limited liability or no limited liability for any members. The profits and losses of the business pass through to its owners, who report them on their personal tax returns just as they would if they owned a partnership or sole proprietorship.
Corporations - are created (incorporated) by a group of shareholders who have ownership of the corporation, represented by their holding of common stock. The shareholders elect directors to set the policies of the corporation and represent their interests. The directors appoint the officers of the corporation to manage day to day operations. Corporations are legally required to follow more formalities than any of the other entities, including annual meetings of the shareholders and directors, as well as board approval of most significant acts by the corporation.