![]() What is a ‘Limited Company – LC’?įormation of a limited company affords the company the ability to keep its debts separated from any shareholder debt. Also, any income or losses received by a limited entrepreneur will be considered passive under the tax code. Like limited partners, limited entrepreneurs typically do not have an active role in the management of the company nor are they held ultimately responsible for any company debt incurred. ![]() Defining ‘Limited Entrepreneur’Ī limited entrepreneur is very similar to a limited partner in a partnership context. Aside from the ability to amass great wealth, a company affords income diversification, the ability to see the correlation between great effort and great reward as well as flexibility and the ability to create freely. Many individuals who have amassed the largest personal fortunes in the world have done so by starting their own companies. If you are seeking a large personal fortune, forming a company may be the best way to amass such a personal fortune. This is vital as the resulting effect is to insulate the owners of the business from any of the LLC’s debt obligations or liabilities. The most recognizable difference between an LLC and a partnership is the fact that an LLC has been designed to ensure that the assets of the business remain from the business owner’s personal assets. It should be noted that an LLC is easier to establish than a corporation and afford its member more flexibility while still provided the protections afforded a corporation. When one typically thinks of an LLC, the thought of a blended formation structure that combines a partnership and a corporation. In a partnership, a business is formed through an agreement of two or more owners. Take this partnership feature and add the liability protections afforded a corporation and you have an LLC. Perhaps, the most significant reason for selecting an LLC is the limitation or protection of the principal members’ personal liability. If a founding company intends to eventually become a publicly traded entity, an LLC may not be the best option. While the LLC formation structure has many attractive attributes, there are also some disadvantages when compared to the corporation formation structure. This limited liability feature can be similarly found in a corporation, while the ability for the LLC to utilize flow-through taxation is a partnership feature. An LLC is, in essence, a hybrid entity that largely combines many of the characteristics found within corporations, partnerships, or sole proprietorships. An LLC, or limited liability company, is a type of corporate formation structure in which all company members are not able to be held personally liable for debts or liabilities that have been incurred by the company.
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