In the last article that we prepared for business INSIDER, we discussed several types of business entities, specifically sole proprietorships, general partnerships and limited partnerships. In this article we will discuss corporations, including Sub-S corporations, and limited liability companies (LLCs).

    You should always keep in mind that legal requirements vary by state depending on the business form chosen and the state law where the business entity is formed must be carefully reviewed. The following, however, are some general characteristics of corporations, including Sub-S corporations, and LLC's.

    Corporations. A corporation is a legally separate entity from its owners, with its own legal rights and responsibilities. One of the primary benefits of a corporation is that its owners (the corporation's shareholders) are not personally liable for debts of the corporation. The shareholders elect a board of directors to supervise the corporation and the board of directors hires officers to manage day-to-day matters. One of the primary disadvantages to a corporation is that its income is taxed twice: first on the corporation's income and then on payments made to the individual shareholders.

    Sub-S Corporations. A Sub-S corporation actually has some characteristics of a corporation and some of a partnership. Assuming certain tax rules are satisfied, income in a Sub-S corporation is taxed only when it is paid to the owners. Like other corporations, however, the owners are not personally liable for debts of the corporation.

    Limited Liability Company (LLC). An increasingly popular form of business entity is the limited liability Company (LLC), which combines some of the best traits of the other business entities. While the owners of an LLC (called members) generally have the kind of limited personal liability associated with limited partners, they have flexibility to participate in the management of the business if provided for in the governing document, called "articles of organization". The earnings of an LLC are treated similar to the earnings of a sole proprietorship or partnership, thereby avoiding double taxation.

    More detailed information concerning these types of business entities should be obtained from your accountant and/or attorney or from the author.

This article is not meant to provide legal advice or offer solutions to individual problems. Questions about individual problems should be addressed to the author.

William Gray is a partner in the Law Firm of Vuono & Gray, LLC, Pittsburgh, PA (412) 471-1800