Roles of Limited Liability Corporations and Partnershipsroles of Limited Liability Corporations and Partnerships
Roles of Limited Liability Corporations and Partnerships
Martin M. Komertz
FIN 419
3/21/2011
John Wetherington
Roles of Limited Liability Corporations and Partnerships
In the following paper, I will look to identify the roles and differences between Limited Liability Corporations and Partnerships. Each has different advantages and disadvantages than the other. I will look to break down each and then identify which method of ownership would be the preferred method from an individual responsibility standpoint. Having stake or being invested into a company is important to know what you rights are and what you as an owner are responsible, liable for, and or entitled to. It is important to understand these things so the best decision can be made when making an investment into a company or taking stake in ownership. IRS.gov defines a Limited Liability Company as “a business structure allowed by state statute.” A Limited Liability Company allows owners to have limited personal liability over debts and actions through decision making by the company or corporation. Limited Liability Companies are able to take advantage of Pass-Through Taxation. Pass-Through Taxation is when owners report their share of profits or losses in the company on their individual tax returns. The IRS does not access the company tax filings, as this helps in avoiding Double Taxation. General Partnerships and C Corporations see “Double Taxation” because both personal and company tax returns must filed where both are taxed for the profits or losses. According to Bright-hub.com, the three most common types of Limited Liability Corporations are: Sole Proprietorships, which are not incorporated, and includes independent contractors, consultants, or freelancers. A corporation, which is incorporated, and has every form of business besides the sole proprietor, who is considered a separate entity and this often provides a measure of legal and financial protection for the
Martin M. Komertz
FIN 419
3/21/2011
John Wetherington
Roles of Limited Liability Corporations and Partnerships
In the following paper, I will look to identify the roles and differences between Limited Liability Corporations and Partnerships. Each has different advantages and disadvantages than the other. I will look to break down each and then identify which method of ownership would be the preferred method from an individual responsibility standpoint. Having stake or being invested into a company is important to know what you rights are and what you as an owner are responsible, liable for, and or entitled to. It is important to understand these things so the best decision can be made when making an investment into a company or taking stake in ownership. IRS.gov defines a Limited Liability Company as “a business structure allowed by state statute.” A Limited Liability Company allows owners to have limited personal liability over debts and actions through decision making by the company or corporation. Limited Liability Companies are able to take advantage of Pass-Through Taxation. Pass-Through Taxation is when owners report their share of profits or losses in the company on their individual tax returns. The IRS does not access the company tax filings, as this helps in avoiding Double Taxation. General Partnerships and C Corporations see “Double Taxation” because both personal and company tax returns must filed where both are taxed for the profits or losses. According to Bright-hub.com, the three most common types of Limited Liability Corporations are: Sole Proprietorships, which are not incorporated, and includes independent contractors, consultants, or freelancers. A corporation, which is incorporated, and has every form of business besides the sole proprietor, who is considered a separate entity and this often provides a measure of legal and financial protection for the
References: Bright-Hub. (10/30/2009). Pass-Through Taxation. Retrieved from http://www.brighthub.com/office/entrepreneurs/articles/51015.aspx Gitman, L. J. (2009). Principles of Managerial Finance (12th ed.). Boston, MA: Prentice Hall. IRS. (1/25/2011). Internal Revenue Service. Retrieved from http://www.irs.gov/businesses/small/article/0,,id=98277,00.html