A. Incorporation including S Corporation
Corporations are closely held or publicly held entities. Most big and publicly traded organizations are corporations while many closely held ones are limited liability companies. Because there are very few federal laws regarding incorporation, state laws do prevail and companies have to decide where they are going to incorporate. Most companies choose Delaware as their state of incorporation because it is a corporate-friendly state. Only when the business is quite small, it makes more sense to incorporate locally. If the corporation is bigger or is likely to conduct business outside of the states then it is worth considering the corporate laws of other corporate friendly states such as Delaware. Corporations usually have general business purposes but can be for non-profit organizations. Corporations must have a board of directors, shareholders if they are for profits, and officers. Corporations are creatures of statutes and must be filed with the Secretary of State. Once corporations are formed, the owners are not personally liable for the obligations of the corporation, beyond the amount of their investment. However shareholders will be liable in cases of leverage, or if the shareholders fail to pay for full consideration of their shares, or fail to observe corporate formalities. The most important formality to upkeep is the control over the co-mingling of corporate and personal assets.
B. Partnership
Partnerships are associations of two or more persons forming a for profit business and are subject to dissolution or dissociation. Partnerships can be at will, for a definite time or for a particular undertaking. As co-owners, partners are liable jointly or severally for all obligations of the partnership to other persons or companies. Also, partners are equally responsible for the conduct and management of the partnership, but share proportionally in the losses or profits of the partnership and have the right to receive distributions of partnership assets. Silent partners are partners that people from the outside do not know are partners in the business but they are as responsible for the business as non silent partners. Partnership agreements, are not required to, but should be in writing to protect partners. Partnerships have the tax advantages that corporations do not have. The most important feature of partnerships is their tax advantage. The partners alone gets taxed, the partnership is not taxed.
C. LLC
Limited Liability Companies are associations of one or more people for profit. They are alternatives to both corporations and partnerships. They have the flexibility and tax advantages of partnerships and the limited personal liability of corporations. In Minnesota, the LLC has a board of governors (directors for corporation), members (shareholders for corporation) and managers (officers for corporation).
D. LLP
Limited Liability Partnerships are associations of one or more general partners and one or more limited partners who join as owners for a for-profit venture, and are subject to dissolution or dissociation. The general partners are responsible for the control of the business. General partners can be corporations or other limited partnerships rather than individuals. Unlike a general partnership, partners in a LLP, except for the general partners, are not personally liable for the obligation of the LLPs. But, LLPs do not protect limited partners from claims of contract creditors or third party tort claims. They will protect against malpractice or misconduct by a partner. Limited partners in a LLP are also not responsible for the partnership’s losses. LLPs are creature of statutes and must be filed with the Secretary of State. Limited Liability Limited Partnerships (LLLP) are just like LLPs but the general partners have limited liability for the obligations of the partnership. It too is a creature of statute and has to be filed with the Secretary of State.
