法律英语：52 LLCs, LLPs, and Corporations

by Michael W. Flynn

First, a disclaimer: Although I am an attorney, the legal information in this podcast is not intended to be a substitute for seeking personalized legal advice from an attorney licensed¹ to practice in your jurisdiction².  Further, I do not intend to create an attorney-client relationship with any listener.   

Today’s episode is a crash course in the differences among sole proprietorships, LLCs, LLPs and corporations. Geoff wrote:

Are LLCs really able to limit a person’s liability? It seems like it is too easy, and I always worry when things seem like they are too easy to be real. Is there really a meaningful benefit to using these structures?

The short answer, Geoff, is that LLCs really are able to limit a person’s liability, and there are several meaningful benefits to forming an LLC. To fully⁴ understand the pros⁵ and cons⁶ of an LLC, it is necessary to understand how an LLC is different from an LLP and a corporation.

Many Americans share the dream of creating their own businesses. You get to be your own boss, directly reap the rewards of your toils⁷, and contribute to your community. Let’s use a bakery as an example. If you have some savvy⁸ with your stand mixer, you might envision opening a small bakery out of your kitchen. But your bakeshop business can take one of several forms. 

Sole Proprietorship³

The simplest is the sole proprietorship. Basically, a sole proprietorship is a business you create, you fully own and for which you are fully responsible. You do not have to get approval for the bakery from the government before you start. (You must still follow health and safety laws, still report any income for tax purposes, etc.) A major advantage to the sole proprietorship is that you are the boss and get to keep all profits. Typically, you are personally taxed on profits as your income. But, the major downside is that you are fully responsible for any debts incurred⁹ by the business, and you are open to unlimited¹⁰ liability. Another downside is that your business dies when you do. 

Limited Liability Partnership¹¹

To limit this liability, there are several options from which to choose. The first is the Limited Liability Partnership, also known as an LLP. An LLP is a legal entity¹² that you create with one or more business partners. You can do so by simply signing an agreement among the partners that sets forth¹³ how profits are shared, how liability is shouldered, and how decisions will be made. Most often, an LLP will divide all these benefits and burdens equally. Profits and liabilities are shared among the partners, and partners can still be personally liable for injuries. So, this offers more protection to you than a sole proprietorship because the liability is shared among partners. But, the protection is not great. Each partner is taxed once for his share of the income. A partnership will often dissolve when one partner dies, leaves, or attempts to pass his interest in the partnership to someone else. Last, some states, including California and New York, only permit certain state-licensed professionals such as attorneys and accountants to form LLPs.

Corporation

A corporation is the most complicated type of business entity. To form a corporation, you must file for approval with your state’s Secretary of State and pay a fee. The owners of a corporation are the shareholders¹⁵, who elect a board of directors who make management decisions. Running a corporation is complicated; you must maintain the board of directors, have annual meetings, and keep annual reporting. The main benefit to the corporation is limited liability. If a corporation incurs¹⁶ liabilities, then the corporation is responsible. In most cases, the shareholders are not personally liable for losses; only the corporation is. One main drawback to a corporation is double taxation¹⁷, which is a taxation principle referring to income taxes that are paid twice on the same source of earned income. Any money earned by the corporation is taxed first as corporate¹⁸ income. Then, if you are paid a salary because you work for the corporation, or if the corporation pays you a dividend¹⁹ as a shareholder¹⁴, you must again pay tax on that income. So, the money earned by the corporation will be taxed twice before you get it. One last advantage is that you can easily transfer your ownership in the corporation by selling your shares, and the corporation will survive despite this change in ownership. 

Limited Liability Corporation

A limited liability corporation, or LLC, is a modern hybrid²⁰ of an LLP and a corporation. To form an LLC, you must file with the Secretary of State and pay a fee. The owners of an LLC are called members, and the members will have an agreement that sets forth who manages the day-to-day affairs of the LLC. LLCs enjoy both the primary benefit of an LLP, single taxation, and the primary benefit of a corporation, limited liability. So, the profits earned by the LLC are passed directly through to the members, who are taxed only once. Also, if an LLC incurs liability, the members are not normally subject to personal liability. It really is the best of both worlds. An LLC can be created where the LLC survives or dissolves when one member transfers his interest. It depends on how the LLC agreement is drafted. 

So, those are the four main business entities²¹ available. Please tune²² in next week to learn more about how the pros and cons of each entity would apply to opening your bakeshop. 

Thank you for listening to Legal Lad’s Quick and Dirty Tips for a More Lawful²³ Life.  Be sure to check out all the excellent Quick and Dirty Tips podcasts at QuickAndDirtyTips.com.

You can send questions and comments to..........or call them in to the voice-mail line at 206-202-4LAW.  Please note that doing so will not create an attorney-client relationship and will be used for the purposes of this podcast only.

Legal Lad's theme music is "No Good Layabout" by Kevin MacLeod.

 

1 licensed   

adj.得到许可的v.许可，颁发执照(license的过去式和过去分词)

参考例句：

• The new drug has not yet been licensed in the US. 这种新药尚未在美国获得许可。
• Is that gun licensed? 那支枪有持枪执照吗？

2 jurisdiction   

n.司法权，审判权，管辖权，控制权

参考例句：

• It doesn't lie within my jurisdiction to set you free.我无权将你释放。
• Changzhou is under the jurisdiction of Jiangsu Province.常州隶属江苏省。

3 proprietorship   

n.所有（权）；所有权

参考例句：

• A sole proprietorship ends with the incapacity or death of the owner. 当业主无力经营或死亡的时候，这家个体企业也就宣告结束。 来自英汉非文学 - 政府文件
• This company has a proprietorship of the copyright. 这家公司拥有版权所有权。 来自辞典例句

4 fully   

adv.完全地，全部地，彻底地；充分地

参考例句：

• The doctor asked me to breathe in,then to breathe out fully.医生让我先吸气，然后全部呼出。
• They soon became fully integrated into the local community.他们很快就完全融入了当地人的圈子。

5 pros   

abbr.prosecuting 起诉；prosecutor 起诉人；professionals 自由职业者；proscenium （舞台）前部n.赞成的意见( pro的名词复数 )；赞成的理由；抵偿物；交换物

参考例句：

• The pros and cons cancel out. 正反两种意见抵消。 来自《现代英汉综合大词典》
• We should hear all the pros and cons of the matter before we make a decision. 我们在对这事做出决定之前，应该先听取正反两方面的意见。 来自《简明英汉词典》

6 cons   

n.欺骗，骗局( con的名词复数 )v.诈骗，哄骗( con的第三人称单数 )

参考例句：

• The pros and cons cancel out. 正反两种意见抵消。 来自《现代英汉综合大词典》
• We should hear all the pros and cons of the matter before we make a decision. 我们在对这事做出决定之前，应该先听取正反两方面的意见。 来自《简明英汉词典》

7 toils   

网

参考例句：

• It did not declare him to be still in Mrs. Dorset's toils. 这并不表明他仍陷于多赛特夫人的情网。
• The thief was caught in the toils of law. 这个贼陷入了法网。

8 savvy   

v.知道，了解；n.理解能力，机智，悟性；adj.有见识的，懂实际知识的，通情达理的

参考例句：

• She was a pretty savvy woman.她是个见过世面的漂亮女人。
• Where's your savvy?你的常识到哪里去了？

9 incurred   

[医]招致的，遭受的； incur的过去式

参考例句：

• She had incurred the wrath of her father by marrying without his consent 她未经父亲同意就结婚，使父亲震怒。
• We will reimburse any expenses incurred. 我们将付还所有相关费用。

10 unlimited   

adj.无限的，不受控制的，无条件的

参考例句：

• They flew over the unlimited reaches of the Arctic.他们飞过了茫茫无边的北极上空。
• There is no safety in unlimited technological hubris.在技术方面自以为是会很危险。

11 partnership   

n.合作关系，伙伴关系

参考例句：

• The company has gone into partnership with Swiss Bank Corporation.这家公司已经和瑞士银行公司建立合作关系。
• Martin has taken him into general partnership in his company.马丁已让他成为公司的普通合伙人。

12 entity   

n.实体，独立存在体，实际存在物

参考例句：

• The country is no longer one political entity.这个国家不再是一个统一的政治实体了。
• As a separate legal entity,the corporation must pay taxes.作为一个独立的法律实体，公司必须纳税。

13 forth   

adv.向前；向外，往外

参考例句：

• The wind moved the trees gently back and forth.风吹得树轻轻地来回摇晃。
• He gave forth a series of works in rapid succession.他很快连续发表了一系列的作品。

14 shareholder   

n.股东，股票持有人

参考例句：

• The account department have prepare a financial statement for the shareholder.财务部为股东准备了一份财务报表。
• A shareholder may transfer his shares in accordance with the law.股东持有的股份可以依法转让。

15 shareholders   

n.股东( shareholder的名词复数 )

参考例句：

• The meeting was attended by 90% of shareholders. 90%的股东出席了会议。
• the company's fiduciary duty to its shareholders 公司对股东负有的受托责任

16 incurs   

遭受，招致，引起( incur的第三人称单数 )

参考例句：

• She falls in love and incurs the wrath of her father. 她恋爱了，这引起了父亲的愤怒。
• A judge incurs no civil liability for judicial acts, even if guilty of fraud and corruption. 法官不得因其司法行为而承担民事责任，即使犯有诈欺与贪污罪。 来自口语例句

17 taxation   

n.征税，税收，税金

参考例句：

• He made a number of simplifications in the taxation system.他在税制上作了一些简化。
• The increase of taxation is an important fiscal policy.增税是一项重要的财政政策。

18 corporate   

adj.共同的，全体的；公司的，企业的

参考例句：

• This is our corporate responsibility.这是我们共同的责任。
• His corporate's life will be as short as a rabbit's tail.他的公司的寿命是兔子尾巴长不了。

19 dividend   

n.红利，股息；回报，效益

参考例句：

• The company was forced to pass its dividend.该公司被迫到期不分红。
• The first quarter dividend has been increased by nearly 4 per cent.第一季度的股息增长了近 4%。

20 hybrid   

n.(动，植）杂种，混合物

参考例句：

• That is a hybrid perpetual rose.那是一株杂交的四季开花的蔷薇。
• The hybrid was tall,handsome,and intelligent.那混血儿高大、英俊、又聪明。

21 entities   

实体对像； 实体，独立存在体，实际存在物( entity的名词复数 )

参考例句：

• Our newspaper and our printing business form separate corporate entities. 我们的报纸和印刷业形成相对独立的企业实体。
• The North American continent is made up of three great structural entities. 北美大陆是由三个构造单元组成的。

22 tune   

n.调子；和谐，协调；v.调音，调节，调整

参考例句：

• He'd written a tune,and played it to us on the piano.他写了一段曲子，并在钢琴上弹给我们听。
• The boy beat out a tune on a tin can.那男孩在易拉罐上敲出一首曲子。

23 lawful   

adj.法律许可的，守法的，合法的

参考例句：

• It is not lawful to park in front of a hydrant.在消火栓前停车是不合法的。
• We don't recognised him to be the lawful heir.我们不承认他为合法继承人。