Corporations are perhaps the oldest and most common formalized type of business entity. Many are familiar with the corporation as old and new employers are often corporations and the stock traded on our public exchanges in New York and around the world are shares of corporations. What may be a surprise to some is that corporations can also be used by small companies or individuals to not only operate a business, but also to limit liability and carry out estate planning goals. Although the liability protection and general structure or rules of a corporation are the same, the owners of a corporation also have the option to elect treatment under Subchapter S of the Internal Revenue Code causing them to become an “S-Corp.”

The limited liability company is a fairly new entity created as a combination of a Corporation and a Partnership extracting attractive aspects of each. The limited liability company or LLC as it is sometimes called has limited liability like the corporation where the person is generally only liable to creditors up to the amount of his investment and the flexibility of a partnership. Operating as a LLC allows the owners to direct the sharing of profits and losses and allocate tax credit based upon a written agreement called an operating agreement allowing for a tremendous amount of flexibility. The members of the LLC generally pay taxes through their personal tax forms resulting in what is commonly called pass through taxation.

A partnership is formed when any two or more people engage in a common effort for profit. A partnership can be formed intentionally or unintentionally and with or without a written agreement. Partnerships range in liability from a general partnership where the partners are equally liable for all other partner’s actions to a limited liability limited partnership where there are limited and general partners that may share liability in different proportions.