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Part Three: What is the difference between a partnership, LLC, and corporation?

In the final blog post of this week's series on business entities, we will be taking a quick look at the traditional corporate model.

Corporations: Corporations are owned by the shareholders, which, in turn, elect a board of directors that are vested with the decision-making authority of the corporation. The board of directors then selects officers who assume the responsibility for day-to-day operations. These positions are not fully independent of one another in that a shareholder may be a director and an officer of the corporation (as is often the case in small, single-shareholder corporations).

Assuming adherence to corporate formalities, shareholders of the corporation enjoy limited liability with respect to the debts and obligations' of the corporation. Although shares of a corporation are freely transferable, the corporation may impose certain share restrictions (such as a right of first refusal) that impose reasonable restrictions on the transfer of shares.

For tax purposes, corporations can also elect to receive Subchapter-S tax treatment. In short, S-Corporations (as they are often called) are only subject to one tax at the individual shareholder level. This pass-through allows an S-Corporation to avoid the double-taxation (at the corporate level and the shareholder level) common in C-Corporations (the default when Subchapter-S treatment is not elected); however, an S-election will subject the corporation to certain restrictions.

As you can see, each entity structure has its advantages and disadvantages. For more information about starting a partnership, LLC, or corporation, call the experienced corporate formation attorneys at The Loftin Firm, P.C. and receive a full analysis about which entity structure is most appropriate for your business venture.

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The Loftin Firm, P.C.
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Carlsbad, California 92008-4713

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