Nowadays the following basic organizational and legal forms of companies are among the most common ones in the United States:
- Sole proprietorship;
- Limited liability companies (LLC)
Each form of ownership has its own distinctive internal structure, size, scope of activity and legal status. All forms of ownership have their own advantages and disadvantages. U.S. corporate law is a two-tier structure. Relevant laws are enacted at the federal and state levels. If the state has not passed its own law, then federal legislation applies.
As in most other countries of the world, an individual can conduct his business in the form of a sole proprietorship. The responsibility of the entrepreneur is unlimited. A lawsuit may be filed against all of his property. This form is usually chosen for small businesses. Its main disadvantage is limited financial capacity. Sole enterprises operate in the field of retail and small wholesale trade and provide services at the local level. Stockbrokers often operate as sole proprietors. The process of registration of a sole proprietorship does not contain many of legal formalities. A sole proprietorship is a “pass-through” entity for tax purposes. This means the tax liability belongs to the owner of the business, “passing through” to the business owner’s personal tax return. Certain business activities of sole entrepreneurs require licensing from state agencies and proper authorities.
IQ Decision UK lawyers will advise you on numerous legal issues that are related to starting your own business in the United States. We have many years of professional experience and successfully provide qualified legal services to clients from different countries of the world in various fields of U.S. law for corporate governance and incorporation on a regular basis.
General Partnership is a commercial (profit-driven) association of two or more members. Since the concept of “commercial” is defined by state laws, and the term “member” can be understood as one person or a group of persons, companies and corporations, partnerships are very variable in form and degree of complexity. Each partner has the direct right to receive part of the profits of the organization and has control over its activities. The legal consequences for partnership members are that they are jointly and independently responsible for the debts of the partnership.
Relations between partners are usually secured by an expressed or implied contract (without formal requirements, such as a signed document). In other words, according to the law, a partnership is considered to be created upon the intention of the parties, even if this is not safeguarded by a formal document. It is possible to determine whether a partnership exists from the point of view of a court by the presence of the following features:
- the intention of the parties;
- profit sharing;
- joint management and control activities;
- capital investment by each partner;
- joint ownership of property.
In order to establish a partnership, each partner usually contributes money, property, or labor in exchange for a share in the ownership of the partnership. Most partnerships are created on the basis of a written contract, although they may be based on a verbal agreement or even a handshake.
A significant advantage of lawyers from IQ Decision UK is the profound professional knowledge of American and international law.
Limited Partnership is an entity of two or more partners who have combined their assets for joint business. At the same time, partners are liable only for the amount of money each of them has invested. Limited liability partnerships do not pay dividends, since the distribution of profits in them is carried out directly. Sometimes this term is referred to as “limited liability partnership” (LLP).
The main advantage of this legal form of organization is that the owners usually are not responsible for the debts of the company.
One of the most important components of success nowadays is business security, both at the initial stage of its organization and in the development process. Ensuring such security where there is frequently changing legislation or an unstable political and economic situation is impossible without the IQ Decision UK highly qualified legal support. Contact us to start a limited partnership.
The most widespread and universal form of business in the United States is corporation.
C Corporation is a business that belongs to the shareholders who bought the shares of the company. From the point of view of the law, C Corporation is considered as a separate legal entity for taxation and other legal purposes. This division protects shareholders and directors from liability in the event of financial crisis or other business problems. All corporations have the status of C Corporation by default, unless they have specifically applied for S Corporation status. They are called C corporations because they are bound by the rules and regulations of Subchapter C of the Internal Revenue Code.
Status C Corporation provides a number of advantages. Since such a corporation is a separate legal entity, it can enter into transactions on its own behalf, but it is easier for it to get financial support (for example, in the form of a loan) than for other legal types of business organization. Unlike sole proprietorship or general partnership, C Corporation owners have limited financial responsibility towards the company. Most owners cannot lose more than they paid for their shares, as their personal property cannot be claimed in case of any legal action against C Corporation.
Separate ownership allows C Corporation to “outlive” all its owners. Unlike a small business, ownership in a corporation can be easily transferred to new shareholders by selling shares.
However, C Corporation has several drawbacks. Dividends are actually subject to double taxation when it comes to income tax. The first time a tax is levied on the income of the corporation as a legal entity, which occurs before the distribution of profits to shareholders. The second time dividends are taxed on income, since they are shareholder income. Corporations with less than 100 shareholders can avoid this double taxation by applying for the status of S Corporation.
In addition, there are many regulations that regulate the activities of C Corporation. Creation and liquidation of such a corporation is a long and expensive process, which is usually carried out by professional lawyers. C Corporation is also required to comply with strict requirements for public disclosure. So reports on the financial condition and operating activities of a corporation must be registered and published in such a way that shareholders can see the development prospects. In addition, the management of the corporation is obliged to regularly hold corporate meetings. C Corporation must also obtain permission from the Securities and Exchange Commission (SEC) to be eligible to sell shares throughout the United States. For the sale of shares solely on the territory of one state the permission from local authorities is enough.
Status C Corporation is best suited for large businesses. For small and medium businesses, the best alternative is the status of S Corporation, which gives owners limited liability and some tax benefits (for example, pass-through taxation).
Legal services are an integral part of international business. Compliance with a legislative framework is one of the main elements of a company's strategic planning. IQ Decision UK lawyers are perfectly aware of how vital it is to protect the results of your professional activity from potential problems and complications in order to ensure successful business development dynamics. Call us now if you have any questions in regard to creating a C Corporation.
S Corporations are one of the corporate forms in the United States that transfers corporate income received, losses and tax deductions to its shareholders with a view to their subsequent taxation at the federal level. Shareholders of S Corporation reflect the flow of income and losses in their personal income tax return, and income tax is paid depending on the rate that corresponds to the tax category of a particular shareholder. This allows S Corporation to avoid double taxation of corporate income. Nevertheless, S Corporation is responsible for paying tax on received passive income and paying Built-In Gains Tax.
To be eligible for S Corporation status, you must fulfill the following requirements:
- the corporation must have a legal address in the United States;
- have only eligible shareholders, including private individuals, certain types of trusts and other types of property interests, but cannot include partnerships, corporations or shareholders who are non-residents;
- have no more than 100 shareholders;
- issue only one class of shares
S Corporation status cannot be obtained by certain financial institutions, insurance companies and local corporations that sell products on the international market.
To obtain the status of S Corporation, a corporation must submit Form 2553 of the Small Business Corporation signed by all shareholders.
Limited Liability Company (LLC)
Limited Liability Company is a fairly flexible legal form of an enterprise that has elements of partnership and corporate structures. This legal form provides limited liability to its owners in the vast majority of U.S. jurisdictions. Limited liability companies do not have to be established for profit.
Sometimes you can find incorrect use of the term in the form of a “limited liability corporation”, instead of “company”. In fact, such a company is a hybrid, possessing the features of both a corporation and a partnership or an individual enterprise (depending on the number of founders). A limited liability company (LLC) is a type of unincorporated association and is not a corporation. The main feature that a limited liability company (LLC) has on a par with a corporation is limited liability. And the main feature that it has along with the partnership is the availability of pass-through income taxation. This legal form allows you to be more flexible than a corporation, and is suitable for companies with a single owner.
It is important to understand that limited liability does not imply that the owners are always fully protected from personal obligations. Courts can sometimes interfere with the activities of corporations and limited liability companies (LLC) if certain types of fraud or misrepresentation have been identified.
IQ Decision UK lawyers advise clients on a wide range of legal issues, ranging from the registration of business objects in various jurisdictions to the structuring and implementation of cross-border transactions related to such objects, including taxation issues and compliance with the requirements of the relevant regulatory authorities.