Overview of Corporate Structures
The appeal of corporations as a reliable form of asset protection lies in the limited liability protection it provides a company’s officers, directors, and principals. Corporations are structured in such a way as to shelter corporate principals from breaches of contract, corporate debt, and liability for personal injuries caused by the corporation and its agents or employees. This does not mean the corporation itself is not liable; but it does mean that the assets of corporate principals cannot be seized to settle these claims. It is this level of protection that distinguishes a corporation from other business structures, such as trusts or partnerships. Several different types of corporations can be used to protect assets: business or “C” corporations, “S” corporations, and limited liability companies (LLCs).
“C corporations” are a type of business organization where the legal ownership is vested in its shareholders, as evidenced by their ownership of company stock. Typically, the shareholders are afforded the opportunity to elect a board of directors, including a president, secretary, and treasurer, who will be responsible for the corporation’s overall management. Many states allow a single individual to serve as the sole director of the company and hold all of the corporate “offices”.
While the liability protection afforded to C corporations generally applies to S corporations as well, the S corporation also qualifies for a special IRS tax election, allowing for corporate profits to “pass through” the business and be taxed only at the shareholder level.
An LLC allows for similar liability protection to the protections enjoyed by corporate principals of C corporations, while offering the same tax treatment as S corporations. However, an LLC avoids much of the formality and restrictive guidelines associated with full incorporation.
Exceptions to Corporate Liability Protections
A personal service provider, such as an attorney, doctor, accountant, or other financial advisor, must abide by one prominent exception to the LLC. These professionals do work that can have a negative impact on another person or entity and, as a result, they may still be personally liable for damages that arise from to malpractice in their profession.
Limited Liability Partnerships
Another kind of liability protection is available through an entity known as the limited liability partnership (LLP). Like a corporation, LLPs provide all of its owners with limited personal liability. LLPs are a good fit for professional services groups, such as accounting firms and law firms. In fact, in some states make LLPs available only to these professionals.
Before deciding on the proper structure to protect your business from liability, consult with the attorneys at Dilendorf Law Firm. Our legal team can ensure your corporate principals are sheltered from any personal liability for business obligations.
LLCs, LLPs and Corporations
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Some of the more common ways to protect your personal assets and keep them separate from the business include LLCs, LLPs and Corporations. The attorneys at Dilendorf Law Firm will help you understand the nuances of each option and set up a sensible legal ownership structure.