Both are ways to attempt to avoid personal liability by creating a
separate legal entity which is recognized as a person under the law.
If one chooses to limit liability in this way it is important to remember
that the mere fact of incorporating the business or forming the limited
liability company is not enough. One must hold out for the world to
see that they are dealing with a separate entity and cannot reasonably
expect personal liability from the owners of the business. In this
regard, the name of the business should always show the limited
designation when the name is displayed, e.g., on signage, stationery,
business cards, etc. And when signing for the company the signer
should always have his or her office following the signature, e.g., John
Doe, President. Finally, in case the corporate or limited veil is
pierced, liability insurance is always recommended to a business owner.
While limiting liability probably is the most important reason for forming
a small company, tax treatment is also a consideration. Companies are
usually taxed at a lower rate than a high income individual, and companies
sometimes can elect a fiscal year end other than the calendar year.
By the way, corporate
records should be kept of all major transactions, and corporate records
should be updated at least annually. These record keeping
requirements are statutory, and are not as stringently found in the later
year statutes which allow the creation of limited liability companies.
This is the main difference we have found between corporations and limited
liability companies. A corporation can have its corporate veil
pierced for not keeping corporate records, while a limited liability
company is not expected to keep much in in the way of records beyond its
annual franchise tax requirement and income tax reporting requirements.
The next major difference is that LLCs pass through all income directly to
the members, with no lower taxation applicable to the LLC entity.
Finally, LLCs
cannot elect a year end other than the calendar year end.
Without giving tax or securities advice, our fee for incorporating a small
business or forming a limited liability company in any state in which we
have an office is $500.00 plus costs. Costs include filing fees at
the Secretary of State's office, initial franchise taxes and the
cost of a corporate record book. Costs vary from state to state but
usually do not exceed $200.00.
Contact the attorney manager of
Law Offices of Gary Green in the state in which you reside for this
service.
