Question

WRITE A ONE PAGE ESSAY:

Instructions: Single-space in paragraphs & double-space between paragraphs. Standard margins, 11-12 point type.

Essay Topic: Compare the benefits and liabilities of a Limited Liability Partnership (LLP), Limited Liability Corporation (LLC), and an S Corporation.

Answer 1

LLC

A limited liability company is a flexible incorporating option, but the option is not available to all businesses nor are the regulations the same in all states. Generally, the IRS considers LLCs to have “pass-through” status, which allows all profits and losses from the business to pass to the owners and be reported on their personal tax returns. LLC owners are protected from personal liability for debts or claims attached to the business and stand to lose only what they invested in the business. LLCs essentially offer protection similar to that of corporation shareholders, but with simpler taxation and management.

LLP

Limited liability partnerships are businesses with more than one owner who all have limited personal liability for business debts. LLPs are primarily used by licensed professional groups, such as attorneys and doctors, and some states do not permit any sort of business apart from licensed professionals to form an LLP. A partner in an LLP is protected from personal liability in the case of debt or claims accrued by another partner, keeping personal assets from being used to pay for the mistakes of another. LLPs are easier to organize and manage than a corporation, making them preferable for professionals who just want protection for their personal assets.

S Corporation

S corporations are not legal business structures. The IRS grants S corp status to qualifying C corporations, and the change in status affects the taxation of the corporation’s profits. Intended for small- to medium-sized domestic businesses, S corporations cannot have more than 100 shareholders. Shareholders never have personal liability for business debt, but they pay personal income tax on any dividends or salaries drawn from the business. S corps are not required to pay corporate taxes; like LLCs, they are "pass-through entities" and all losses and profits go through to the corporation's owners. As a corporation, however, an S corp must perform a variety of bureaucratic duties to remain compliant, including issuing stock, passing bylaws and holding shareholder and director meetings with accurate minutes.