Changes in New York LLC Statute, may actually make it much harder to decipher the ultimate beneficial owner (aka real owner) of an LLC?

John Kiritsis, Esq., CPA, MBA, MS, JD, LL.M

Kiritsis Law Group  

212 922 0005

 

There are a myriad of changes happening to Limited Liability Company Law, as 2023 rolls in.

 

Deciding on the correct business entity can be a difficult decision to make. LLCs have rapidly become the preeminent entity of choice among small and midsize businesses. Forming your business as an LLC will give you the flexibility to run a successful business. 

 

An LLC limits the business owner’s personal liability by protecting their personal assets from being seized if the company is sued or files for bankruptcy. This liability protection is especially important for small business owners who may not have the resources to withstand a major legal challenge.

 

An LLC is able to take advantage of the pass-through taxation method; the company pays taxes on its profits but receives a tax deduction for its losses. This means that the company's owners only pay taxes on their personal income, not on the company's profits.

 

There are many factors you should weigh when deciding which entity to form your business as. Some of these include personal assets, location, industry standards, taxes, and other factors. There are four main types of legal entities: sole proprietorships, partnerships, limited liability companies, and corporations. Each type has its own advantages and disadvantages.

 

Sole proprietorships are the simplest and most common type of business entity. They are easy to set up and require little paperwork. However, sole proprietorships offer no protection for the owner’s personal assets. This means that if the business is sued, the owner’s personal assets, such as their home or savings, could be at risk.

 

Partnerships are similar to sole proprietorships but involve two or more people. Partnerships can be either general partnerships or limited partnerships. 

 

The main advantage of a general partnership is that it allows two or more people to pool their resources and expertise to start and run a business. The main disadvantage is that each partner is jointly and severally liable for the debts and obligations of the business, meaning that each partner is individually responsible for the actions of the other partners. This can be a significant risk, particularly if one or more of the partners is not financially responsible.

 

Limited partnerships offer some protection for the partners’ personal assets, but also come with more complex paperwork and filing requirements. In a limited partnership, each partner has limited liability, meaning that they are only responsible for the debts and obligations of the partnership up to the amount they have invested. This form of partnership is beneficial for those who want to invest in a business without assuming full responsibility for its debts and obligations. This type of partnership is often used for business ventures where there is a high level of risk involved. This is because each partner is only liable for their own debts and not the debts of the other partners. This can protect partners from losing more money than they originally invested.

 

LLCs offer the limited liability protection of a corporation, while also offering the flexibility and tax benefits of a partnership. LLCs can be formed by a single individual or a group of individuals and can be managed in a variety of ways, making them a popular choice for small businesses.

 

LLCs offer the personal asset protection of corporations but are less complex to set up and maintain. However, LLCs are subject to additional taxes and regulations, such as self-employment taxes and the requirement to file annual reports.

 

Corporations are the most complex type of business entity. They are typically large organizations with many employees and shareholders. They are also subject to more regulations than other types of businesses, which can make it difficult to operate profitably.

 

They offer the greatest protection for the owner’s personal assets but come with the most paperwork and filing requirements. Corporations are also increasingly focused on sustainability and social responsibility. Many are setting goals to reduce their environmental impact, and some are even investing in renewable energy sources. In addition to making a profit, many corporations are working to improve their social impact by supporting charitable causes and investing in their local communities. This includes things like volunteering, donating money, and supporting local businesses. By doing this, corporations hope to make a positive difference and build goodwill among the people they serve.

 

A corporation is a separate legal entity owned by shareholders who are not liable for the corporation’s debts. A corporation can own property, enter into contracts, and sue or be sued in its own right. Shareholders elect a board of directors to oversee the corporation’s affairs. The board of directors is responsible for making major decisions on behalf of the corporation, and shareholders can hold the board accountable for its actions.

 

A corporation can be taxed as a C Corporation or an S Corporation. The C Corporation tax rate is typically higher than the S Corporation tax rate. The C Corporation is also subject to double taxation, meaning that the corporation itself is taxed on its profits, and then the shareholders are taxed on the dividends they receive. The S Corporation is not subject to double taxation.

 

A C corporation is treated as its own taxpayer, which means that profits are taxed at the business level and then paid out to shareholders. This can create a double taxation situation, where the corporation is taxed on its profits and then the shareholders are taxed again on the dividends they receive. This form of taxation allows corporations to save money on taxes by distributing dividends among shareholders. However, this comes with the drawback that corporate profits are taxed twice; once when they are distributed as dividends and again when received as income by shareholders.

 

 

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