sole proprietorship, partnership, or corporation. By default, an LLC is treated as a pass-through entity, meaning profits and losses flow directly to members without entity level taxation. However, an LLC can elect to be taxed as a C Corporation if desired. Unlike corporations, LLCs do not have strict management requirements— members can manage the company themselves or appoint managers. This structure is particularly attractive for small and medium-sized businesses, real estate ventures, and professional service firms due to its operational flexibility and simplified compliance requirements.
4.1.4 Partnerships
Partnerships are business structures in which two or more individuals or entities share ownership, profits, and liabilities. There are several types of partnerships, each with different levels of liability and management control: (i) General Partnership (GP): In a GP, all partners share equal responsibility for management and liabilities. This structure is easy to form and offers tax simplicity but provides no liability protection—each partner is personally responsible for business debts and obligations. (ii) Limited Partnership (LP): An LP consists of at least one general partner (who manages the business and assumes full liability) and one or more limited
partners (who invest in the business but have limited liability). LPs are commonly used for investment funds and real estate projects.
(iii) Limited Liability Partnership (LLP): LLPs are typically used by professional service firms, such as law and accounting firms. All partners have limited liability, meaning they are not personally responsible for the actions of other partners. (iv) Limited Liability Limited Partnership (LLLP): An LLLP is an extension of an LP, offering limited liability protection to both general and limited partners. This structure is not available in all states but is useful for businesses seeking to limit liability exposure for all partners.
4.2 Incorporation Process and Legal Requirements Establishing a business entity in the U.S. requires compliance with both state and federal regulations. Each business structure—C Corporation, S Corporation, Limited Liability Company (LLC), and Partnerships—follows a distinct incorporation process with varying legal requirements. Below is an overview of the incorporation steps and governance considerations for each entity type.
4.2.1 Filing Incorporation Documents with the Secretary of State
The first step in forming a business entity is filing the appropriate formation documents with the Secretary of State in the chosen jurisdiction: (i) Corporation and S Corporation: Must file Articles of Incorporation (or Certificate of Incorporation in some states). These documents outline essential
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