Articles of Incorporation create a corporate business entity.
Businesses have different structures for different reasons. In many cases, a business is structured a certain way so that owners can take advantage of certain benefits such as tax shelters or personal liability protection. Professional corporations and limited liability companies are popular business structures. Depending on the size of the business, the type of business and the tax implications of the business, one business structure may be more appropriate than another. Many factors must be considered before structuring a business a certain way.
Limited Liability Company
A limited liability company, also known as an LLC, is a business ownership structure that has similar characteristics of a corporation as well as a partnership. Limited liability company owners are called its members. The members of a limited liability company must be on file with the secretary of state in which the LLC was formed. An LLC's owners are not personally liable for the debts and actions of their company.
Forming an LLC is straightforward and requires a trip to the secretary of state's office. You can also form an LLC on-line in some cases. The "Articles of Organization" are what describe the LLC as a separate entity from its owners. There are single-member limited liability companies as well as LLCs that have several members.
Professional Corporation
A professional corporation is a business structure for business owners that have a professional designation such as a doctor, chiropractor, dentist or lawyer. Similar to a limited liability company, individual states regulate what type of professional is free to form professional corporations within their state. Corporations are owned by their shareholders. A professional corporate structure protects shareholders from the libelous actions of others, however, it does not protect the professional from the liability that may result from malpractice or other negligent behavior. Corporations must formulate corporate by-laws that determine how the business will operate.
Advantages
The advantages of both a professional corporation and a limited liability company is that they both provide a level of protection against liability for their shareholders and members. Because the businesses are structured as separate legal entities, the business owners are not held liable for the debts and actions of the business. Corporations have the opportunity to sell stock in order to raise additional capital. Limited liability companies offer more flexibility and ease of management than a corporation. LLCs are not required to have by-laws and are not subject to the state and federal regulations that corporations are.
Disadvantages
Forming a corporation can be expensive and time consuming. Unfortunately for professionals, in order to operate their business in some states, they are required to form professional corporations. Corporations are often subject to higher taxes overall than limited liability companies. Limited liability companies have the benefit of choosing the entity through which they will file their taxes.
Considerations
The type of ownership structure a business-person chooses to operate under has long-term affects on the livelihood of the business. Considering which business structure is most appropriate depends on a variety of factors and should be thoroughly discussed with an attorney who specializes in forming businesses as well as tax professionals that can offer the most solid advice for your situation.
Tags: liability companies, limited liability, business structure, business owners, debts actions, form professional, form professional corporations