Question

Explain how an S-Corporation and a limited liability company and a limited liability company can be formed? What are their restrictions and characteristics?

Answer 1

Characteristics of a limited liability company.

a. the limited liability company is a separate entity from its owners mean it has a separate legal existence.

b. the owners of a limited liability company on having their liability towards the total liability of that company up to his capital contribution.

c. the same taxation system used in case of partnership firm is used in limited liability companies also.

d. they are like partnership firm in so many cases like profit and loses, drawings ownership of property etc

e. for every limited company, there should be at least two Members to deal with matters like appointing an auditor, official signatory, annual return preparation, and submission etc.

f. they have to make disclosure on business letters and order forms, websites check invoices and receipts etc.

Restrictions of LLP.

1. Disclosure of accounts even it is not a company it has to disclose its financial statements like a company does.
2. No income tax advantages will be provided to income is taxed as per individual income tax rules.
3. Can not retain profit like the company does. LLP Have to share its profit.

Steps in the formation of a limited liability company.

1. Verify qualification status if it is mandatory in the state where you are planning to start LLP. Some states like new York made it mandatory to satisfy qualification status to carry LLP In the state.
2. Pick a name which is not selected by any other companies that already exist in the state. For that, you can search for the local secretary office.
3. Draft an LLP Agreement which is not mandatory for the majority of the states but its highly recommended.
4. Designate a registered agent which is Mandatory in most of the states. A registered agent is on who is having state permission to conduct business in the state. he may be either an individual or a company. whatever be the case he must have a physical address.
5. Certification of limited liability partnership with the state which is mandatory state will charge a fee for every such certification. And its common form of LLP Agreement.
6. Registration for EIN. Employer identification number is 9 digit number provided By IRS that classy you for tax purpose. it's Mandatory to open a business bank account.
7. LLP have to also apply and Receive a state ID Number that is also used for tax purpose.
8. Obtained all Federal state local license conduct business on the premises. Like trade license occupation license etc.
9. Purchase insurance planes to safeguard assets of business and employees too.
10. Publish the formation of LLP Formation that is not Mandatory for all states but it is a must in New York.

Difference Between S Corporation and LLP

The Main Difference Between S Corporation and LLP is that S Corporation may have more members and its tax provisions are more or less same to that of the company. but in case of LLP, It has minimum two members and they are taxed as per personal income tax rules