Corporations and Limited Liability Companies
The reality is that if you are operating a small business, you may find yourself being sued in the future. There are steps that you can take to avoid placing all of your assets at risk, if you take them ahead of time. There are a number of different legal entities that are available to someone operating a business.
A legal entity can limit personal liability for the business owner for most debts of the business. There may also be both financial and tax advantages. This brochure addresses corporations and limited liability companies. Both corporations and limited liability companies are recognized as separate, legal entities from the owner, so that the owner's personal assets are protected from liability for business debts.
Types of Corporations
Corporations
Created by state law. A corporation organized under Maryland law may be suitable for your needs. However, most corporations are also taxed as separate taxpayers.
Close Corporations
Maryland law provides for close corporations. The advantage of a close corporation is reduced administrative requirements compared to general corporations. It is best for a one person operation.
General Corporation
A general corporation is more formal.
Tax Treatment of Corporations
Corporations may be taxed as either "C Corps" or "S Corps." Subchapter S treatment is only available under certain conditions. If available, a Subchapter S election can avoid double taxation.
Limited Liability Company
This a new entity that has been in Maryland since 1992. It provides limited liability to its owners, but does not pay a separate income tax. However, its availability is not as limited as a Subchapter S election. It is a form of entity that is increasingly being used due to its flexibility and other advantages.
The practicality, availability and ramifications of your choice of entity and tax treatment should be discussed with a lawyer.