Limited Liability Corporation, Limited Liability Partnership, and Class C Corporation Paper

October 19, 2015
FIN 419
Sarah Newton

Limited Liability Corporation, Limited Liability Partnership,
and Class C Corporation Paper
There are many different types of ways to label a business. The main ways are sole proprietorship, partnership, or a corporation. A sole proprietorship is “owned and run by one natural person and in which there is no legal distinction between the owner and the business.” (Sole Proprietorship, 2015) A partnership is a “single business where two or more people share ownership.” (Partnership, 2015) A corporation is a “legal entity that is separate and distinct from its owners.” (Corporation, 2015) While each have some commonalities, they also have some very distinct differences, particularly with regard to liability exposure.
Limited Liability Corporation or a LLC is a company that is a business that “combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.” (Limited Liability Company, 2015) This means that a LLC is a combination of a sole proprietorship/partner and a corporation. The main factor that is shares with a sp/p is that it has the pass-through taxation, meaning that is will not partake in double taxation. The main factor that a LLC shares with a corporation is that any bad financial decisions will not directly affect the owners but the company itself. (Limited Liability Company, 2015)
Limited Liability Partnership or a LLP is a company that is a business that “limited partnership is similar to a general partnership except that it has two classes of partners.” (Limited Liability Partnership, 2015) This means that a LLP is a combination of a general partnership and a corporation. The main factor of a partnership is that there is more than one person making the initial investment but since it is a limited liability, they don’t risk the personal responsibility for the other partner. This is an ideal situation for a partnership with two partners who aren’t available to take on the other person’s financial responsibilities. (Limited Liability Partnership, 2015)
Class C Corporation or a CCC, is “any corporation that is taxed separately from its owners.” (C Corporation, 2015) Now this is not to get confused with a Class S Corporation or a CSC, which has a different factors. This is the most common classification for corporations. “A corporation may qualify as a C corporation without regard to any limit on the number of shareholders, foreign or domestic.” (C Corporation, 2015) This means that unlike a CSC, a CCC is a standard corporation, meaning that it doesn’t have special taxes or federal claims. Also means that there is no limit on the amount of shareholders unlike the CSC has a limit. (S Corporation vs C Corporation: A Comparison, 2015)
Whether it be a LLC, LLP, or CCC, businesses can be classified into one of these types. Based on the knowledge gained, the best type of fundamental basis for a business, depends on how many owners and the amount of the shareholders there are to determine the best type. Personally, I would choose a LLP, because I wouldn’t want to take on all the financial responsibility however I wouldn’t want to be solely responsible for the all of the financial information. Not to mention that I wouldn’t want to be responsible for anything more than my initial investment. The other reason I think that this is the best move is because of the fact that for tax purposes, the IRS doesn’t have a standard response it is base by base situations.
Depending on the business’ needs and how many owners or shareholders, determines what type of business classification it will be. There are the standards: sole proprietorship, partnership, or a corporation, with the sub classes: limited liability corporations/ LLC, limited liability partnerships/ LLP or a class c corporation/ CCC. Each have factors that are suited better than others for certain business situations. The main factors with the limited liabilities is that they are a hybrid of multiple types of business. LLC is mix between a sole proprietorship/ partnership and a corporation, which can avoid double taxations. LLP is a mix between a general partnership and a corporation, which is allows each partner to only have to worry about their own investment and stake within the company. A CCC is the standard