1. SP, GP, LLC, LLP, C Corp, S Corp: Decoding the Alphabet Soup of Incorporation

2. Dr. Yousem’s project was funded through an RSNA Educational Grant
A Special Thank You to: Dr. David M. Yousem, M.D., M.B.A.
Professor, Department of Radiology
Vice Chairman of Program Development
Director of Neuroradiology
Johns Hopkins Hospital for allowing the use of his material/content in this presentation Dr. Yousem’s online lecture series can be viewed at:
Dr. Yousem’s project was funded through an RSNA Educational Grant

3. Why should I care? Protection of personal assets Limiting liability
Possible taxation benefits
Selling stock to raise funds
Durability
Corporation continues indefinitely
Transfer of ownership
Corporation has its own credit and credit rating

4. Limited Liability Partnership, LLP Corporation
Types of Businesses
Sole proprietorship
General Partnership
Limited Liability Partnership, LLP
Corporation
C Corporation
S Corporation
Limited Liability Company, LLC
Professional Limited Liability Company, PLLC
Pass-through entity

5. Sole Proprietorship Single owner
No legal distinction between the person and the business
All assets owned by the person
All profits pass to the owner – taxes paid on owners personal tax return
Unlimited personal liability
No durability
Example: After the death of the owner the business ceases to exist

6. General Partnership Association of 2 or more persons
Generally created by partnership agreement
In the US a partnership is legally recognized as a separate entity from the persons making it up
No protection from personal liability
Owners are personally liable for all debts, taxes, and liabilities of the business
Profits shared between partners as specified in the partnership agreement – taxes are paid on each partners tax return
Decision making powers are specified in the partnership agreement
No durability
Technically a partnership dissolves after death of a member

7. Limited Partnership, LP
One or more General Partners
Run the business, have decision making authority
Personally liable for all debts, taxes, malpractice
One or more Limited Partners
Limited partners generally do not get involved with day to day decisions
No personal liability, only liable up to their investment
Example: Jane (general partner) owns a building and Joe (limited partner) invests money with Jane. Jane shares the buildings profits with Joe. If the building burns down Joe would only lose his investment and would not be liable for additional damages.

8. Limited Liability Partnership, LLP
All partners have limited liability
You are not personally liable for debts and taxes of the business
You are not responsible for your partners negligence or malpractice
You are responsible for your own negligence or malpractice
Different from a corporation by the fact that all partners retain decision making capacity
Typically used by lawyers, accountants and architects

9. C-Corporation
Separate legal entity, created to maximize profit and limit liability
Profits are double taxed
The corporation is taxed on its income
The dividends it pays to its shareholders are also taxed
Limited corporate liability
Shareholders only lose their investment if the corporation fails
Personal liability
Malpractice is not covered by corporate liability
Small portions of the company owned by shareholders (i.e. stock)
No limit to number of shareholders
The may different types of stock (preferred stock)
Additional information
IRS Publication 542

10. S-Corporation Separate legal entity from its shareholders
Annual state tax/fee for existence
Not double taxed
Corporate income is divided among the shareholders
Individual shareholders must declare income on their individual taxes
Limited liability same as a C-Corporation
Different shareholder structure from a C-Corporation
Only one type of share (no common or preferred stock)
Limited to 100 shareholders or less
Shareholders must be U.S. Citizens or residents
Profits are allocated to shareholders based on their investment in the business
Additional information
IRS Publication 542

11. How is a corporation formed
C-Corporation
Name is chosen
Initial board of directors appointed
File paperwork
Create bylaws
First board of directors meeting
Issue stock
S-Corporation
Same as for C-Corporation, but must meet special requirements as outlined in the previous slide
Conversion from a C-Corporation to an S-Corporation must be by unanimous shareholder vote
If an S-Corporation fails to fulfill the special requirements of an S-Corporation it will automatically revert to a C-Corp and be taxed as such

12. Limited Liability Company, LLC
Blend of aspects of a partnership (or sole proprietorship if there is a single owner) and a corporation
A LLC is not considered a corporation
Limited liability
Only members’ investments are at risk
Taxation by default is similar to a sole proprietorship or general partnership
A LLC can elect to be taxed as a C-Corp or S-Corp
Some states allow formation of PLLC (professional limited liability company) for professions that require a license to operate (such as doctors or lawyers)

13. A few words about limited liability
Financial liability for the companies debts is limited to a fixed sum
Most commonly the sum of the person’s investments, you can’t lose more money than you have invested
If a plaintiff sues a corporation they are suing the corporation and not an individual
You are still liable for your own actions
Limited liability does not protect you from malpractice
It does protect you from your partners malpractice (in the case of a LP or LLP) or other shareholders malpractice (in the case of a corporation)

14. Aims to avoid double taxation
Pass-Through Entity
Aims to avoid double taxation
The entity files tax returns, but does not actually pay taxes
Only the investors are taxed
Form K-I is issued to each investor reporting their individual earnings/ losses

15. In a nutshell Limited liability Taxation
LP, LLP, LLC, and incorporation all provide their partners and shareholders with limited liability protection
Sole proprietorships and general partnerships do not provide this protection
In any of these business types you are still liable for your own actions/malpractice
Taxation
C-Corporations are “double taxed”
They pay tax on corporate income
Their shareholders pay tax on the dividends
The remainder of the business types are “pass through” which means the profits are taxed based on the individual’s tax return

16. In a nutshell (continued)
Decision making capacity
In a partnership all partners are part of decision making process
In a corporation the board of directors holds the decision making power
Paperwork
C-corporations and S-corporations require the most paperwork to initially set up the business and to keep it going
i.e. usually requires an accountant and perhaps a lawyer
LPs and LLPs
Less paperwork
Technically sole proprietorships and general partnerships do not require the filing of any paperwork with the federal or state government

17. In a nutshell (continued)
Additional information
Partnerships need to be made up of at least two people
S-corporations
No more than 100 shareholders, all US citizens or residents
Only 1 type of stock
C-corporations
Unlimited shareholders, multiple classes of stock

18. References
“Business of Radiology”. Lecture series by Dr. David Yousem. Accessed December 2010
“LLCs, corporations, partnerships, etc.” Accessed December 2010
“Publication 542" (PDF). Department of the Treasury, Internal Revenue Service. February Retrieved December 2010.