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A partnership having one or more general partners and one or more limited partners. An unincorporated entity organized as an LLC under state law. A corporation ...
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Characteristic^ General Partnership^ Limited Partnership
Limited LiabilityS Corporation^ C CorporationCompany (LLC)
1.^ Definition^ A business associationA partnership havingof two or more personsone or more generalto conduct a businesspartners and one orunless formed under anymore limited partners.other statute.
A corporation organizedAn unincorporatedA corporation organizedunder state law. Mustentity organized as anunder state law.elect subchapter S statusLLC under state law.by filing election withIRS (Form 2553).
2.^ Name^ No name restrictions.^ Must contain limitedpartnership withoutabbreviation. Cannotinclude a limitedpartner’s name unlessthat partner is also ageneral partner.
Must contain limitedMust containMust containliability company,corporation,corporation,L.L.C., L.C., LLC, LC,incorporated, company,incorporated, company,limited company, ltd.limited, corp., co., inc.limited, corp., co., inc.liability company, ltd.or ltd. Professionalor ltd. Professionalcompany, limited co. orcorporations must statecorporations must stateltd. co.PC or professionalPC or professionalcorporation.corporation.
3.^ Governing^ a. Certificate of co-a. Certificate of limitedInstrumentspartnership filed withpartnership filedcounty (usuallywith state.renewable every 5b. Partnershipyears).agreement.b. Partnershipagreement. Nowriting necessary toform partnership.
a.^ Articles ofa. Articles ofa. Articles oforganization filedincorporation filedincorporation filedwith state.with state.with state.b. Operating agreementb. Bylaws.b. Bylaws.(not required).c. Various contracts arec. Various contracts areallowed amongallowed among share-shareholders such asholders such as stockstock purchasepurchase agreementsagreements andand voting trusts.voting trusts.
4.^ Owners^ Partners.^ General partners andlimited partners.
Members.^ Shareholders.^ Shareholders.
5.^ Management^ Partners.^ General partners only.Authority
Managers or membersDirectors and officers.^ Directors and officers.(must choose one).
6.^ Permitted^ All partners.^ General partners only.Participation inParticipation by limitedManagementpartners may subjectthem to liability.
Managers or membersShareholders electShareholders elect(if member-manageddirectors who makedirectors who makecompany).corporate decisions andcorporate decisions andwho elect officers towho elect officers toperform and carry outperform and carry outdirectives.directives.
Characteristic^ General Partnership^ Limited Partnership
Limited LiabilityS Corporation^ C CorporationCompany (LLC)
7.^ Voting^ Majority vote of generalMajority vote ofpartners if in ordinarygeneral partners,course of business;provided, however, thatotherwise unanimouslimited partners alsovote.vote on admission ofpartners, dissolution,continuation after thewithdrawal of a generalpartner, and thecompromise of apartner’s debt to thepartnership. This can bemodified by agreement.
One member, one vote.Shareholders vote basedShareholders vote basedMajority vote ofon number of shareson number of sharesmembers, exceptowned. Majority vote ofowned. Majority vote ofunanimous vote requiredshares of those entitledshares of those entitledby statute for someto vote controls. Thereto vote controls. Theremajor decisions. Thismay be a nonvotingmay be multiple classescan be modified byclass of shares, butof shares. Votingagreement and is oftenotherwise only one classrequirements may bemodified to providepermitted.modified by agreement.voting based onownership interest. TheLLCA now references amajority in interest ofthe members. Themethod of computingvoting rights should beaddressed in theoperating agreement.
Characteristic^ General Partnership^ Limited Partnership
Limited LiabilityS Corporation^ C CorporationCompany (LLC)
Unless a company isOfficers and directorsOfficers and directorsmember managed,have statutory duties ofhave statutory duties ofmembers have nogood faith to act in thegood faith to act in thefiduciary duties.best interest of thebest interest of theManagers, and memberscorporation and not tocorporation and not toin a member-managedusurp corporateusurp corporatecompany, do have aopportunities. Ifopportunities. Iffiduciary duty of careminority shareholdersminority shareholdersand loyalty and theare oppressed by theare oppressed by theobligation to act in goodmajority shareholders,majority shareholders,faith and with fairthe majoritythe majoritydealing.shareholders may beshareholders may beliable.liable.
No restrictions.^ Numerous restrictions,No restrictions.including disallowingownership by non-resident aliens,partnerships,corporations, and otherspecific persons andentities.
No restrictions.^ At least one, but noNo restrictions.more than 100,shareholders.
Members can agree onBecause only one classShareholders canany financialof stock is allowed,establish differentarrangement as long asshareholder’s share ofclasses of stock that canit has economic reality.distributions must beprovide for different orbased on proportionatepreferential returns.stock ownership.Default rule is thatdistributions are basedon proportionate stockownership.
Characteristic^ General Partnership^ Limited Partnership
Limited LiabilityS Corporation^ C CorporationCompany (LLC)
Membership interestsStock is freelyStock is freelyare transferable, but thetransferable unlesstransferable unlesstransferee will not berestricted by the articles,restricted by the articles,admitted as a memberbylaws, or abylaws, or aexcept as provided inshareholders’ agreementshareholders’the operating agreementor by the restrictionsagreement.or, if not provided,imposed underwithout the consent ofsubchapter S.all the other members.Owners can agree onrestrictions.
Unless elected to bePass-through taxation toTaxed as a corporationtreated as a corporationowners unless built-inat the corporate level.under check-the-boxgain, excess passiverules, will be taxed as aincome, or LIFOpartnership with pass-recapture exceptionsthrough taxation to theapply. Generally notowners.taxed at corporate level.
Rules applicable toContributions ofContributions ofgeneral partnerships willproperty for stock willproperty for stock willapply unless it hasbe taxable unless itbe taxable unless itelected to be treated as ameets the requirementsmeets the requirementscorporation.of IRC 351.of IRC 351.
Rules applicable to^ Contributions ofContributions ofgeneral partnerships willservices for stock willservices for stock willapply unless it hasbe taxable.be taxable.elected to be treated as acorporation.
Characteristic^ General Partnership^ Limited Partnership
Limited LiabilityS Corporation^ C CorporationCompany (LLC)
If the LLC is treated as aSeparately stated passNo pass through.partnership, thethrough to shareholders.Distributions generallypartnership rules willtaxable as dividends toapply. If treated as aextent of earnings andcorporation, losses notprofits.recognized and gainmay be recognized ondistributions.
Generally cannotGenerally similar toNo effect on owners’include in basis becauseLLC.basis.liabilities of LLC arenonrecourse to themembers.
Subject to rules ofTreated as return ofWill be treated aspartnership orbasis and not taxable todividends to extent ofcorporation, dependingextent of basis. Anyearnings and profits,on how elected to beexcess will be taxed aswhich, through 2012,taxed.capital gain.will be taxed as capitalgain.
Subject to rules ofGain on appreciatedGain on appreciatedpartnership orproperty will beproperty will becorporation, dependingrecognized and passedrecognized andon how elected to bethrough to shareholdersshareholders willtaxed.and shareholders willrecognize income orrecognize income orcapital gain as acapital gain as a dis-distribution.tribution. No doubletaxation at both cor-porate and shareholderlevels.
Characteristic^ General Partnership^ Limited Partnership
Limited LiabilityS Corporation^ C CorporationCompany (LLC)
No distribution toNo distribution toNo distribution toowners if, after givingowners if, after givingowners if, after givingeffect to it, LLC wouldeffect to it, theeffect to it, thenot be able to pay itscorporation would notcorporation would notdebts as they becomebe able to pay its debtsbe able to pay its debtsdue or its liabilitiesas they become due oras they become due orwould exceed its assets.its liabilities wouldits liabilities wouldexceed its assets.exceed its assets.
Mergers of LLCs intoIn converting toIn electing to become another business entitiespartnership or LLC, theS corporation, built-inand other entities intocorporation will begain rules, LIFOLLCs are nowdeemed liquidated andrecapture, and passivespecifically allowed byassets contributed to theincome rules need to bestatute.new LLC or partnership.analyzed. See text fordiscussion of theseTo change form orissues. In converting tomerge into a corporationpartnership or LLC, thewould be treated as acorporation will becontribution of thedeemed liquidated andLLC’s assets inassets contributed to theexchange for stock.new LLC or partnership.
No tax at entity level.^ No tax at entity level.^ Subject to 6 percent taxon corporation’s incometax base.