Business Entities Glossary
Subchapter S Corporations:
A Subchapter S Corporation is a state chartered corporation which has a limited number of shareholders. It operates as any other corporation but elects to have a special tax treatment of its profits. A Subchapter S Corporation is treated as a flow-through entity for income tax purposes so that its profits flow directly through to the shareholders’ personal returns.
Limited Liability Companies (LLC):
A limited liability company (LLC) is a type of corporation. It is owned by members rather than shareholders. A limited liability company may be taxed as a corporation, a partnership or a sole proprietorship. Determination of the tax election is usually made through the CPA handling the LLC business. A LLC has liability protection benefits of a corporation and may provide for more centralized management by the members.
Limited Partnerships (LP):
A limited partnership is a business entity which has one or more general partners and one or more limited partners. The limited partners in a limited partnership are investors only and have no management control. The benefit to the limited partners is that they have no liability for partnership debts or obligations. The general partner may be an individual or it may be another corporate entity such as an LLC. A limited partnership (LP) may allow for the limited partnership interest to be spread among various family members but maintain a centralized control through the general partner.