There is no greater adventure than starting a business venture. One of the most important decisions a perspective entrepreneur makes is choosing what type of business entity to establish to further his or her business purpose. Entrepreneurs must consider the structure of how they would like to manage their business entity, whether they desire to have limited liability, potential capital assets that may be available through corporate structure, tax consequences, and how different business entities are formed.
At Clemmons Law Firm, we can help you through the formation process by helping you select the perfect business structure to meet your needs as an entrepreneur. After we help you create your business, we are available to continually assist you with all of your counseling needs. Below, you will find information about business entities in South Carolina. This information provides a platform to educate the entrepreneur about the business entities available and their relative strengths and perspective weaknesses. As always, Clemmons Law Firm exists to serve all of your legal needs. Call us today to schedule a consultation about forming your next business entity!
A personal entrepreneur and a partnership are the most basic business formations. Personal entrepreneurs may start a business entity simply by performing a task for profit. A partnership, can also be created by performance. A partnership is an association of two or more people for the carrying on of a business for profit. Partnerships can be created through express or implied agreement. An express agreement can be in writing or based upon oral representations. A partnership is implied when there is not an express agreement, and a partnership can be determined by the conduct between the potential partners. With partnerships, there is no required filing under South Carolina law to validate the partnership. Partners in a partnership have unlimited liability for the affairs and liabilities of the partnership. Therefore, you better trust who you are in partnership with because all partners are jointly and severally liable for the actions of the other partner when they are acting on behalf of the partnership.
A limited partnership consists of one or more general partners and one or more limited partners. The general partner is responsible for the day to day operations of the partnership. He is also completely liable for the affairs of the limited partnership. His responsibilities are designated by the partnership agreement. A limited partner is a partner that contributes capital for the partnership. His sole function is to act as an investor to the partnership. As a limited partner, his activities are limited in relation to the general affairs of the limited partnership. As such, the limited partner receives limited liability. The limited partner will only be liable for his interest in the partnership. He will not be held personally liable for partnership affairs. The limited partnership structure is perfect for someone who wants to invest in a business but does not want to participate in the daily operations or open themselves up to liability.
Limited Liability Partnerships
Limited liability partnerships are partnerships where each individual partner receives limited liability from the affairs of the other partners. The partners of a limited liability partnership are only liable for their own actions and the actions of those they supervise. A limited liability partnership is generally formed by professionals (attorneys, accountants, and medical specialists) wishing to take advantage of the benefits that result from partnership, but they do not want to incur liability for the acts of the other partners. Additionally, the partners of an L.L.P. are not personally liable for the affairs of the partnership. Therefore, they are only liable for their own actions, the actions of those they supervise, and their investment into partnership assets. Limited liability companies are formed by meeting the statutory requirements of South Carolina and satisfying filing with the Secretary of State.
Corporations are statutorily created, meaning that corporations are created by meeting the requirements set forth by the statutes of South Carolina. The filing requirement is called the Articles of Incorporation. The Articles of Incorporation contains the identification of the principle place of business, the business purpose, director(s), initial agent of the corporation, and the amount the shares the corporation is able to distribute. Corporations have an independent managing body from the ownership of the corporation. The ownership of the corporation consists of shareholders who receive ownership in the form of corporate stock. Shareholders have limited liability from the affairs of the corporation. The corporation itself is solely liable for the acts of the corporation. Directors who manage the corporation also have limited liability as they act within the scope of their fiduciary duty. Specific to the corporate entity, the ownership structure is very flexible. A corporation can distribute different types of stock to meet the needs of the corporation. This ownership structure provides more options to achieve the desired result. Corporations can also differ from other business entities by the manner in which they are taxed. Therefore, in relation to the other business entities, corporations require greater planning, but they also provide greater organizational flexibility.
Statutorily Close Corporation
A statutorily close corporation is a corporation with a limited number of shareholders. The shareholders often handle the day to day operations of the corporation. The shareholders are often family members or close associates who wish to limit the availability of shares to the open market. Generally, there is no market for the transfer of the shares. Typically, the shareholders wish to maintain their percentage interest, while taking advantage of the corporate structure. Shareholder of a statutorily close corporation maintain limited liability from the affairs of the corporation. Additionally, they can also elect how to be taxed, whether by flow through taxation or double taxation. Double taxation is the typical tax method identifiable with corporations, and flow through taxation occurs when the shareholders profits or losses are filed on their individual tax return as opposed to a separate filing.
Professional corporations are corporations that combine the benefits of a corporation with similarities of a limited liability partnership. Like the L.L.P., professional corporations are associations of professionals. However, as opposed to an L.L.P., the professionals have a corporate structure and can benefit from the protection of the corporate veil. Therefore, in a professional corporation professionals receive greater protections from liability than partners of a L.L.P. Professional corporations are formed by meeting the filing requirements with Secretary of State.
Limited Liability Company
Limited liability companies are companies that benefit from flexible management structure, limited liability for its members, and preferable tax treatment. Limited liability companies must elect to be member managed or manager managed. Members are the primary investors to the company. They can elect to manage the company themselves (member managed) or select someone to manage the company for them (manager managed). Members of a member managed L.L.C. maintain control over the day to day operations of the company. However, if a L.L.C. elects to be manager managed the member operates merely as an investor. A L.L.C. may elect to be taxed as a corporation through double taxation or it can elect to be taxed by flow through taxation where each individual member is responsible for recording profits on their individual tax return. The members of a limited liability company benefit from limited liability. Limited liability companies are formed by meeting the statutory requirements of the South Carolina Code and filing requirements of the Secretary of State.
As mentioned above, this information is solely for informational purposes only. Clemmons Law Firm is ready, willing and able to assist you to select the perfect business structure for your business purpose. Along with the many topics discussed above, it is also important to consider how a business entity dissolves and the ramifications for dissolution. From start to finish, Clemmons Law Firm is there for you to help you along your way. Contact us today for a consultation regarding your next business venture!