MOLLY MAID Right Start Transfer Manual Copyright 2015, Molly Maid, Inc. The basic forms of operation in which business is conducted are: the corporation and the Limited Liability Company (LLC). Each has its own legal and tax characteristics that determine its relationship to the individual owner(s) and to society in general. Corporation A “C” Corporation (regular or tax-paying Corporation) is a separate legal and tax entity. Shareholder liability is generally limited to the amount contributed or paid for the stock. A regular corporation’s income is subject to “double taxation”: first at the corporate level and then to the shareholders when distributed as dividends. Major advantages are: Limited liability Continuous life Tax advantages, in some cases The disadvantages are: Relatively high cost of formation and administration Relative lack of freedom Double-taxation of income in some cases Subchapter S Corporation This is a regular corporation that elects to be treated by the IRS according to Subchapter S of the Internal Revenue Code. This form has many of the advantages of the corporation but is treated as a partnership or proprietorship for tax purposes (avoiding the double taxation problem). If an S corporation election is made, income (loss) is taxed directly to the shareholders since an S corporation is only a conduit for tax purposes. Regardless of its status (regular “C” or “Subchapter S”) for tax purposes, corporations provide shareholders with the advantages of limited liability and an independent legal existence apart from its owners. Limited Liability Company A limited liability company is a legal entity created under state law, although there r non-U.S. LLCs as well. The LLC is an entity separate f m i s ow ers. Proprietary and Confidential Information 1.5.1 Legal Organization of Your MOLLY MAID Business One of the first things to consider at the outset of starting your business is the legal form under which it will operate. Confer with your legal and accounting advisors for guidance. Ultimately, you and your business advisors must choose the appropriate legal form for the business to meet your needs. The two primary issues involved in deciding which type of entity to choose are: 1. Liability for the actions and debts of the business. 2. Taxation of the business. Page 7
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