LLC, Corporation, Partnership ... Which type of company to choose?
30 million is the number of small businesses in the United States. Yet, out of hundreds of thousands of creations each year, half does not survive 5 years, and the third does not celebrate his tin wedding. How to choose the structure of your company, what are its advantages and the tax system? Before launching, here is a presentation of the main forms of companies in the United States ...
The different types of companies in the United States
Good to know: Company law is governed by the state, and each state determines its own laws. Once your business is formed in a state, you will need to register it in other states where you would like to expand its business. Similarly, the name of your company is protected by intellectual property law only in the state in which you have registered your company.
Fortunately, there are some commonalities about companies in the US, including their training conditions, structures and taxation.
For foreign investors, there are mainly 2 types of companies in the United States: corporations and LLCs (Limited Liability Companies).
Limited Liability Companies - LLCs
Introduction to the LLC
The LLC is a hybrid model between the corporation - and its limited liability - and partnership - and its more flexible organization.
The LLCs have their own lexicon: thus, their leaders are called "members", and the officers who can govern it, "managers" - an LLC is not, however, obliged to appoint managers.
Forming Your Limited Liability Companies - LLC -
Choose a name for your LLC. Check with the State in which you wish to train.
Fulfill, according to the States, the "Articles of incorporation" or "Certificate of organization" or "Certificate of formation". This document contains the basic information (the name of the company, the address of its principal agent), and it is then authenticated by the state of registration.
Pay a contribution (between $ 100 and $ 800) for the registration of the company.
Write a "Operating Agreement". This document collects the main rules to govern the company and can make 1 page like 100 or 1000.
Register your company, and get it a tax number.
Write a contract organizing in more detail the relationships between the different members of the LLC - in case.
Structure of LLC
There are two main types of management: either the "members" of the LLC reserve all the rights and make their decisions, the "members" delegate and entrust the management powers to "managers".
Taxation of LLC
LLCs are generally not subject to corporation tax (consult an accountant - CPA in the US - for the conditions of non-taxation of LLCs). If it has a sole partner, the LLC does not have to file a clean tax return: the gains and losses are then directly added to the owner's tax return. If there are several partners, the LLC must file an income tax return. But the profits are taxable directly in the hands of the partners.
The corporations
A corporation would correspond to a French SA, where shareholders or managers are liable only to the extent of their contributions in the corporation. It is a rather traditional form of society, but still governed by a more rigid and formal set of rules than that of the LLC.
Forming Your Corporation
You should first choose the state in which you wish to set up your company; It is generally the State in which the corporation has its headquarters. Avoid the myth of states with lower taxes, such as Delaware, Wyoming, or Nevada, for whichever state you choose, you will have to file your tax return in the state States where you will have business operations.
The conditions for forming a corporation are quite clear:
Choose a name (check therefore its validity in the State in which it will be incorporated).
Determine who will be, or will be, the director (s) of the company.
Fill in the official documents called "Articles of Incorporation" or "Certificate of Incorporation" or "Corporate Charter" and pay between $ 100 and $ 800 for the registration of the company.
Register your company, and get it a tax number.
Establish a set of rules and laws to govern your corporation, called "bylaws"; These laws are enacted by the board of directors and define, among other things, the manner in which directors are elected, the different missions of officers, the frequency of meetings, etc.
If necessary, draft a Shareholders' Agreement that will be used to resolve potential future disputes between shareholders.
Structure of the Corporation
Shareholders elect one (or more) person (s) on their board of directors, which will establish rules for the conduct of the business, determine priorities and actions, and approve decisions. This board of directors will then appoint a president, a treasurer, a secretary ... and other officers, natural persons who will manage the corporation on a daily basis and sign the contracts.
Taxation of corporation
The company is completely separated from its shareholders; It pays corporation tax (at the federal and state levels) before distributing any dividends.
Other forms of companies
Other companies include:
- Sole Proprietorship: Sole Proprietorship.
- The "Partnership": partnership.
- The "S Corporation": a "corporation" with fiscal transparency, just like the LLC mentioned above. Only natural persons resident in the United States may be shareholders of S Corp.
The Small Business Manager Lexicon
Assets: assets
Board of Directors: Board of Directors
Dividend: dividend
Operating agreement: agreement or operating agreement
Stock or Share: one share
Stockholder or shareholder: shareholder
Venture capital: venture capital