Dissolution of a Corporation or Not for Profit Organization
Description
Dissolution of a Corporation or Not for Profit Organization document sample
Document Sample
BUSINESS ORGANIZATIONS - STATE LAW ATTRIBUTE COMPARISON GRID
Corporation
Attribute Sole Proprietor General Partnership Limited Partnership Limited Liability Company
C- Corporation S-Corporation
One individual who carries An association of two or more individuals who make a A hybrid entity, generally formed under state law that A business entity that carries its A corporation can elect to be taxed as an S corporation.
on an incorporated trade or legal contract to carry on a trade or business. A joint combines the pass-through attributes of a partnership with own legal status, separate and Call a Small Business Corporation Form 2553. Must
business. undertaking merely to share expenses or share the limited liability of a corporation. The LLC can also distinct from its owners. Fiscal year. file within 15 days of the 3rd month of the corps tax
•Reporting Entity ownership of property does not necessarily constitute a elect to be taxed as a C Corporation. (Check the box Form • Taxing Entity year Only domestic corporations with one class of stock
•Not a Taxing Entity (Pass partnership. 8832). • Reporting Entity eligible. Limited to 75 shareholders, and may not have
thru entity) •Reporting Entity •Reporting Entity another corporation as a shareholder. Calendar year
Description
•Not a Taxing Entity (Pass thru entity) •Not a Taxing Entity (Pass thru entity) • Not a Taxing Entity (Pass thru entity)
• Reporting Entity
Must apply for EIN Must apply for EIN . GP are not employees Must apply for EIN Must apply for EIN Must apply for EIN
otherwise may use SSN.
Employees
Owners are not employees
Net profit is computed on Partnership income and expenses flow through to the Taxed as a partnership, unless election is made on form A C corporation pays tax on its Taxed in the same manner as a partnership. Income and this is a Must register with the statesimple , if no written agreement is desired; complex, if written agreement is desired;
Schedule C or C-EZand is individual partners. Income is taxed to the partner 8832. Income and expenses flow through to members. profits. When the owners expenses flow through to shareholders. Pass-through test to see
reported as income on the whether or not it is actually distributed. Pass-through (shareholder) take profits form he items retain the same character in the hands of the
owner's Form 1040. items retain the same character in the hands of the corporation, the distributions take shareholder as they had in the hands of the corporation.
Taxation partner as they had in the hands of the partnership. the form of taxable dividends
(double taxation). "Personal Service
Corporations" are taxed at a high
rate, 35% flat rate.
easy Must register with the state and have a written agreement that complys with state law if LLC Must register with the state; less Must register with the state. Less complex if standard
complex if standard forms and used; forms are used; more comples if owners need a buy-sell
more complex if owners need a buy- and/or a close corporation agreement.
sell and/or a close corporation
Ease of agreement. written agreement is not required by statue; written agreement is preferred,
formation especially for a limited partnership and limited liability company
When when business when business starts when the organizing document is filed with the Secretary of State corporation agreement corporation agreement
formed starts
Organizing None None - may need to Certificate of Limited Articles of Organization Articles of Incorporation Articles of Incorporation or Charter
document file fictitious name Partnership or Charter
form
Limited No No General Partner -- No Yes Yes Yes
liability Limited Partner -- Yes
of owners
Extent of liable for own wrongful acts and contracts G.P. - same as any liable for own wrongful acts;not liable for wrongful acts of employees or other owners solely because of being an owner; not liable for
liability of and torts and contracts of employees general partner contracts unless owner personally guarantees obligation or executes contract without disclosing principle/agent relationship
owners and partners solely because of being L.P. - same as a
an owner; general partners are jointly member and a
and severally liable for torts and jointly shareholder
liable for contract
Attribute Sole Proprietor General Partnership Limited Partnership Limited Liability Company Corporation
C-Corporation S-Corporation
Continuity No No No No Yes
of life Business dissolves upon the death, insanity, bankruptcy, dissolution, withdrawal perpetual --death, insanity, bankruptcy, dissolution of a shareholder does not dissolve
of a general partner, member (but not a limited partner); remaining owners may the corporation.
reformulate and continue or wind-up. For an LLC formed since November 21,
1997, a member may not resign unless the operating agreement permits.
Number of one at least two at least two; at least two in some states; some at least one at least one
owners at least one GP and permit one owner; trend is toward
at lease one LP one owner; since November 21,
1997, Ohio permits one owner.
Can creditors N/A Yes -- by No No No No
of individual obtaining
owners force and foreclosing
dissolution of on a charging
the entity order
Double No No, if it does not elect to taxed as a corporation Yes - if the corporation has any No - except for built-in gains tax and passive
taxation income left after paying salaries investment income tax.
and other expenses.
Tax law None None None; None None 75 or less (spouses are treated as one)
restrictions 500 or more owners could result in corporate treatment no partnership, non-resident aliens, limited types
on owners of trusts, no corporations
Deter- N/A If two owners - as a partnership if not publicly traded and does not elect to be taxed Always taxed Not taxed
mination as a corporation; if there is only one owner, it is taxed as a sole proprietorship as a C-corp.
of tax if the owner is an individual, or as a division, if the owner is an entity, unless it
status elects to be taxed as a corporation.
Employee Owners are restricted in their participation in retirement and other benefits available to employees. In other words, No restrictions Like partnership, except
benefits some benefits available to owner/employees of corporations are not available to sole proprietors, partners and members, on availability of limitations apply or
available such as: (I) full deductibility of health care costs (limited in sub-k), (ii) 401(k) plans (not available to sole proprietors), benefits to owners >2% owners. Some
to owners (iii) deductible life insurance premiums, and (iv) cafeteria and other qualified plan benefits. Owners may, however, limits apply to
participate in a SEP, IRA, SIMPLE, >5% owners.
Owner is subject to self- A general partner's share of business income (including Profits are subject to income tax in the same way as a Shareholders who perform services An employee/shareholder of an S corporation receives
employment tax of 15.3% of guaranteed payments) is subject to self-employment tax. partnership. Member's business income (including for a corporation, including officers, wages for services rendered. Wages paid to
net earnings. Self- A limited partner's share of business income is not guaranteed payments) is subject to self-employment tax. • are treated as employees. Wages of employee/shareholders must be "reasonable."
employment tax is computed subject to self employment tax unless the partner Avoids double taxation of profits corporate employees are subject to Additional profits are passed through to the shareholder
on Schedule SE and is performs services for the partnership. Other items, such payroll tax and withholding Wages and are taxable for income tax purposes but not for SE
Wages & SE Tax
reported as "Other taxes" on as interest and dividends, retain their character and are paid to employee-shareholders must tax purposes. Double taxation of profits is avoided.
Form 1040. passed through to the partners individual income tax be "reasonable." Dividend
return. distributions are not subject to SE
tax.
Corporation
Attribute Sole Proprietor General Partnership Limited Partnership Limited Liability Company C-Corporation S-Corporation
• Minimum legal restrictions. • A partnership can be a good way to combine the skills • Avoids certain S corporation restrictions. • Limited liability. • Profits passed through are not subject to SE tax as in a
and/or financial abilities of several different people. • Ease of transer of ownershp partnership.
• Perpetual life •Ease of transfer of ownership
Advantages • Easy to discontinue. • Ease of transfer of ownership. • Limited liability.
• Ability to raise capital through • Perpetual life.
issuance of stock. • Ability to raise capital through issuance of stock.
• Unlimited liability • A partnership is often easier to get into than out of. • Inconsistent treatment state to state. • Double taxation of profits. • Shareholders pay tax on profits even if undistributed.
• May not bring in new • General partners are liable for actions of other partners. • Relatively new business entity with little regulatory or • Corporate charter restricts types of • Less flexibility in selecting tax year.
Disadvantages owners or outside capital case law to follow. business entities. • Pension contributions limited to wages not on total
contributions profit.
• Income tax cannot be • Subject to various state and federal • Pension contributions limited to wages not on total
deferred by retaining profits. controls. profit.
IRS
Publication/Form 334/Sch C, C-EZ, Form 1040 541/Form 1065, K-1 541/Form 1065, K-1 542/Form 1120 589/Form 1120S
LIMITED LIABILITY PARTNERSHIP: A limited liability partnership ("LLP") is a general partnership that files a registration with the Secretary of State and
by doing so permits the partners to avoid joint and several liability for wrongful acts of partners and employees.
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