What Type of Alabama Business Organization Should You Form?
A Registered Limited Liability Partnership (LLP), a Limited Liability Company (LLC), a “C” Corporation, and an “S” Corporation generally prevent the owner from liability in the course of ordinary business. A Sole Proprietorship, a General Partnership, and a Limited Partnership generally make the owner liable during the course of ordinary business.
There are other differences and a brief description follows:
NOTE: This is intended to be general information and is not legal advice. Consult an attorney for specific advice relating to the formation of a business.
Business Entities with Generally No Personal Owner Liability
Limited Liability Company (LLC)– A Limited Liability Company is owned by one or more members. To form a Limited Liability Company, you must file articles of Organization with the Probate Court in the county in which the business is primarily going to perform business operations. The owners of an LLC are referred to as members and management is conducted by the manager designated by the members who create the LLC’s operating agreement.
Registered Limited Liability Partnership (LLP)– A Registered Limited Liability Partnership is a partnership with two or more general partners who have filed a registration with the Probate Court in the county where they primarily conduct business and with the Secretary of State of Alabama. The partners own the business and decisions are generally made by the majority of partners unless otherwise delegated.
“C” Corporation– A “C” Corporation is owned by one or more shareholders and taxes are imposed on both the shareholder and the corporation. A “C” Corporation is formed by filing Articles of Incorporation with the Probate Court in the county where the corporation primarily conducts business. Shareholders own “C” Corporation’s and a Board of Directors generally make the decisions, but are governed by the “C” Corporation’s bylaws. Officers typically implement “C” Corporation’s Board of Director’s decisions, and shareholders elect the Board of Directors which in turn appoint the Officers of the “C” Corporation.
“S” Corporation– An “S” Corporation is run the same as a “C” Corporation with the shareholders electing the Board of Directors and so on. However, in an “S” Corporation, the Corporation itself is not taxed and corporate profits pass to the shareholders and the tax burden is on the shareholders only. In addition to filing Articles of Incorporation with the Probate Court in the county where the corporation primarily conducts business, the shareholders must file written shareholder consent with the Internal Revenue Service (IRS).
Business Entities with General Personal Owner Liability
Sole Proprietorship– A sole proprietorship is owned by an individual and comes into existence by merely commencing business. It makes the owner 100% liable for the business.
General Partnership– A general partnership is a business entity made up of two or more partners. A general partnership exists when two or more individuals come to an agreement that is either written or oral. Business decisions are made by partner majority unless a specific partner is specified to make the decisions. The partners own the business and all have owner liability.
Limited Partnership– A limited partnership is a partnership in writing composed of one or more general partners and one or more limited partners. The general partners have liability, but the limited partners do not have owner liability. A limited partnership is formed by filing a certificate of limited liability with the Probate Court and business decisions are generally made by a majority of the business partners unless otherwise delegated.