CORPORATIONS AND LLCS
Do corporations and limited liability companies offer limited liability?
Corporations and limited liability companies both offer limited liability to the owners. In sole proprietorships or partnerships, the owners are personally liable for claims against their business and the business is liable for claims against the owners.
Corporations and limited liability companies are liable only for claims against the business and only to the extent of the company’s assets. The owners’ personal assets are not at risk.
When might the owner of a corporation or LLC be held personally liable?
An owner of a corporation or an LLC may be held personally liable if he or she:
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1.personally and directly injures someone;
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2.personally guarantees a bank loan or a business debt on which the entity defaults;
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3.fails to deposit taxes withheld from employees' wages;
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4.intentionally does something fraudulent, illegal, or wrong that causes harm to the company or to someone else; or
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5.treats the entity as an extension of himself or herself, rather than as a separate legal entity.
How many owners are required for a corporation or LLC?
Both corporations and limited liability companies may have as few as one owner in California. Although those who own 100% of their corporation’s stock may feel odd carrying the titles of Director, President, Treasurer, Secretary and Chairman of the Board, it is and has been very common. Single member LLCs, on the other hand, have only been permitted in California since January 1, 2000.
Does the minimum franchise tax apply to corporations and LLCs?
Both corporations and limited liability companies are subject to a minimum franchise tax in California. A minimum franchise tax of $800 is imposed on corporations and limited liability companies annually regardless of whether they have income or losses. This tax is waived for corporations, but not for limited liability companies, for the first taxable year if formed on or after January 1, 2000.
Can corporations and LLCs be taxed like partnerships?
Both corporations and limited liability companies may be taxed like partnerships. Corporations are taxed like sole proprietorships or partnerships if they make an S-election and become S corporations. This means that corporate income will be taxed at the individual shareholder level only. Corporations that do not make the S-election are taxed on corporate income at the corporate level, and the shareholders are then taxed on dividends distributed to them at their personal level. LLCs may check a box to elect to be taxed as a partnership or as a corporation.
Do you handle annual filings for corporations and LLCs?
When forming a corporation or LLC, I prepare most of the necessary filings for the year of formation. However, most business owners file subsequent annual filings on their own. If you have more than one business entity or your business has a presence in more than one state, keeping track of the filings can become more complex. If this is the case with your business, I can track your annual filings and prepare and file them as necessary.
Please contact me to discuss your specific corporation issue.
Alena Herranen, J.D., LL.M. Taxation, M.B.A.
Copyright 2002-2016 by Alena M. Herranen. All rights reserved. No part may be reproduced, transmitted or transcribed without permission of the author unless otherwise specifically stated.