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if you're starting a business in the united states you have several different types of business entities you can choose from if you're by yourself and meaning you don't have any other investors it's just you starting the company and you don't create an llc in your state you don't file articles of incorporation to create a corporation then you are a sole proprietor okay you have a sole proprietorship even if you haven't filed any paperwork or anything like that if you start a business you're selling products or providing services and you don't have an llc you're not incorporated you're by yourself your sole proprietor so if you're a sole proprietor then what you're going to do is you're going to track the the profit of your business you're going to file it on this thing called schedule c which is going to be filed along with your 1040 so your personal income tax return basically when you are a sole proprietor the irs treats you and the business as one in the same okay so you're gonna file the schedule c along with your normal tax return so that's a sole proprietor now if you have two or more persons and they are entering into business together then you have a partnership unless of course you've created an llc or a corporation which we'll get to but let's just say no llc no corporation you just have two or more persons they're entering into business together okay so let's say you got two friends or three friends okay they have a partnership okay there are different types of partnerships we can have a general partnership where everyone is a general partner we have a limited partnership limited partnership is there's someone one of the partners just puts up some capital but they're not going to be involved in managing the business okay so that's a limited partnership someone's not there's at least one partner who's not actively managing the business they just they just made an investment either you even have limited liability partnerships which are like some of the larger accounting firms now i put persons in quotation marks here when i said two or more persons uh is a partnership because it doesn't have to be an actual person for example you could have a corporation you could it could be you and then some corporation that together start a partnership so it's very flexible when it comes to what does it mean to have persons and then there's usually what you really want to do is create a thing called a partnership agreement to outline like how the profits of the partnership would be split up and so forth so and then it would be form 1065 would be the form that's uh filed for the for the partnership in terms of with the irs to report the profit or loss to the partnership and then whatever your partner so let's say you're a partner in the partnership your share of the profit or loss will end up being reported on your 1040. now let's skip before we get to llc let's go to corporations okay let's go to corporation and we'll start with at c corporation a c corporation is the default corporate type and what i mean by that is this if you go in your state okay let's say you live in delaware and you file articles of incorporation to create a corporation okay you create this this this it's a separate legal entity it's not like the sole proprietorship where you and the business are one in the same it's a separate thing okay so you create this corporation you file the articles of corporation if you just file that and you've got a corporation you have a c corporation and as corporation you have to make an election so you basically create a c corporation first and then say i want to elect to become an s corporation okay so now the c corporation one of the the biggest disadvantages is double taxation and i'll talk about this more in the videos to come but basically the seep corporation the profit or losses so let's say c corporation is 100 million dollar profit that would be taxed and then when the c corporation if they issue dividends to the shareholders the shareholders will be taxed on those dividends so there's two layers of taxation now a corporation a c corporation files form 1120 to report their their tax profit or or loss now in s corporation as i said is so you filed the articles of incorporation you have a corporation you have the c corporation and then you say you know what i want to elect to be treated as an s corporation so you make this election there's a form 2553. now there are a lot of restrictions on who can be a shareholder in an s corporation how many can he sharehold for example you can just have 100 shareholders you can't have like you know 10 000 shareholders so if you're thinking about like a large publicly traded company like microsoft or something it's not going to be an s corporation because it's going to have a lot more than 100 shareholders and microsoft so you've got to limit on the number of shareholders and then also who can be a shareholder for example uh a c corporation cannot be a shareholder of an s corporation so you have a lot of restrictions on an s corps there's there's rules about who can become an s corp and there's rules to remain an s corp okay you can lose s corp status potentially if you violate the rules now form 1120s is the tax return filed by the s corporation and long story short you said well why would someone have an s corporation 7c corporation and s corporation does not have the double tax there's no double tax with an s corporation because even though the corporation files form 1120 s the s corporation uh it's not actually taxed on its profits basically this is called a flow-through entity where the profit or loss of the s corporation flows through to the shareholders okay and then the shareholders are taxed on their share of the the company's profits okay so basically c corporation is the only entity type is subject to double taxation all these other entity types are flow through so that leaves us with the llc okay so we've got the llc llc can be a single member llc because it's just one person it's basically like a sole proprietorship only you have actually created a formal entity so this llc it's not the same as a corporation you're not filing articles of a corporation but there is paperwork there are things you have to do to get registered with a state you can create an llc in any of the 50 states okay so you've got a single member llc or you can have a multi-member members are just just like you have partners in the partnership you have members in the llc so the members are the owners so you can have multiple members or just one member llc typically a multi-member llc uh so in terms of what to be taxed you see how i said like form 1065 for partnership form 1120 for c corps i don't have a form here for llc and the reason is that the llc can be taxed a number of different ways okay it can be taxed so a multi-member llc is typically choose to be taxed as a partnership okay but it could also elect to be taxed as an escort i'll talk about that more in videos to come but typically multi-member llc taxes a partnership and single member llc it could be taxed as a sole proprietorship okay now you say we
Thanks for your comment Kelly Cilento, have a nice day.
- Kasi Stiers, Staff Member
welcome back today we're going to talk about the different types of LLC's we'll address just a few in this video I'm mark Lida from the light a law firm let's get started LLC's can be used for all different types of purposes and can be set up in many different ways the first type of distinction between different LLC's is whether your LLC is a single member LLC alright multi-member LLC that's pretty self-explanatory a member is considered an owner of the LLC so a single-member LLC simply means that there's one owner of the LLC and a multi-member LLC means that like a partnership there are multiple owners LLC's can be owned by individuals or by other LLC's so if you have multiple LLC's owning a single LLC that would be considered a multi-member LLC another distinction between different types of LLC's is member managed versus manager managed this too is fairly self-explanatory but when you're registering your LLC you'll probably be asked to declare whether your LLC is a member managed LLC or a manager managed LLC all that means is that a member managed LLC is where the actual member of the LLC and owner of the LLC is actually running the show and managing the operations of that LLC where as a manager manage two LLC is a type of situation where maybe one person owns the LLC but they delegate the task of actually managing that LLC to another person who is a non-member that would be a manager managed LLC another big distinction you see among LLC's are holding or umbrella LLC's versus actual operating LLC's this isn't just an LLC concept it's a company concept in general there are companies that exist only to hold assets like real estate or to act as an umbrella holding company for other companies subsidiary companies those are considered holding companies and then on the other hand you have actual operating LLC's so that's another distinction you see holding LLC's versus operating LLC's the reason that holding companies exists is to create additional layers of protection from liability so these are just a few different types of LLC's there are more and there are different ways that you can use LLC's but these are some of the major distinctions that you see you have single member LLC's versus multi member LLC's you have member managed LLC's and manager managed LLC's you have Holding Company LLC's and operating LLC's but they're all LLC's they're all the same type of basic legal structure and depending on your state you register them in the same way it's just you're choosing to do different things with each of those different types of LLC's so that is an overview of some basic types of LLC's and that's in the distinctions between them we go into a little more detail all about LLC's in this playlist thanks for watching and please remember to click like and subscribe to help keep legal education free for small business cars you
Thanks mijesck your participation is very much appreciated
- Kasi Stiers
About the author
I've studied post-processualism at Appalachian College of Pharmacy in Oakwood and I am an expert in mechanochemistry. I usually feel complacent. My previous job was dry wall installer I held this position for 4 years, I love talking about bell ringing and hammocking. Huge fan of Camila Mendes I practice synchronized swimming and collect barbie dolls.
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