All Corporate entities are required to maintain a Registered Agent including LLCs, Corporations, Nonprofit and Limited Partnerships. The registered agent is responsible for maintaining a physical address in the state of incorporation, qualification or registration and must be available during normal business hours.
An Employer Identification Number also referred to as a Federal Tax Identification Number is used to identify a business entity. The EIN is required to open a bank account, applying for business licenses, paying and doing business with vendors, and filing tax returns.
Forming an LLC or Corporation provides Asset Protection also referred to as Liability Protection. This means that the business entity is separate from the business owners’ personal assets such as home, car, bank accounts, personal investments and creating a “corporate veil” around the business. In most cases, in the scenario of litigation the personal assets will be protected.
Ultimately when trying to understand the best tax scenario for your business, you should seek the guidance of a CPA. The IRS does not have a separate tax classification for LLC’s. LLC’s are managed by a member manager or manager-managed structure.
The benefit is when forming an LLC, you can choose how you wish to be taxed:
Sole Proprietor – This tax scenario applies to single-member LLC’s and the IRS refers to this as a disregarded entity. The income and expenses are subject to self-employment tax.
Partnership – This tax scenario applies to Multiple-Member LLC’s with two or more members. This allows for the profits and losses to pass through to each member.
C Corporation – This type of taxation is considered to be double taxed. C Corporation taxation is when the LLC is paying taxes on its profits and then any profits are distributed to the members and thus the members pay taxes as well. In order for an LLC to choose this classification, it must file Form 8832 with the IRS.
S Corporation – An LLC taxed as an S Corporation is not taxed on its profits, but the profits are passed to the individual owners/members and double taxation is eliminated. To file as an S Corporation, Form 2553 must be filed with the IRS.
Both a Corporation and LLC provide personal liability protection by separating the business owner from the business entity. LLCs are managed either by member-managed or manager-managed while corporations have a Board of Directors and Officers. A Corporation is a more formal type of entity. A big distinction between both is how each is managed and taxed. Contact us to learn more.
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