SOLE PROPRIETORSHIP

A sole proprietor is someone who owns an unincorporated business by himself or herself. However, if you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation.

PLLC

Professional corporations and professional limited liability companies (PLLC's) are corporations and limited liability companies organized for the purpose of providing professional services. Usually, professions where the state requires a license to provide services, such as a doctor, chiropractor, lawyer, accountant, architect, or engineer, require the formation of a professional corporations or PLLC.

PARTNERSHIP

A partnership is an association of two or more persons to carry on as co?owners a business for profit.

A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.

A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return.

Partners are not employees and should not be issued a Form W-2. The partnership must furnish copies of Schedule K-1 (Form 1065) to the partners by the date Form 1065 is required to be filed, including extensions.

If you are a partnership or a partner (individual) in a partnership, use the information in the charts below to help you determine some of the forms that you may be required to file.

CORPORATION

In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. A corporation can also take special deductions. For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders.

The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.

LIMITED PARTNERSHIP

A business organization with one or more general partners, who manage the business and assume legal debts and obligations, and one or more limited partners, who are liable only to the extent of their investments. Limited partners also enjoy rights to the partnership's cash flow, but are not liable for company obligations.

S CORPORATION

An S Corporation or S Corp is a special type of corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. An S Corp is a corporation that has received the Subchapter S designation from the IRS.

LLC

Chapter 57C: North Carolina Limited Liability Company Act.

LLCs are similar to Chapter S corporations, except they can exist for a defined period of time. Owners receive the tax advantages of a partnership, while also receiving the protection of a corporation.

 Limited liability companies may be formed for most businesses, except some professional businesses that require licensing for protection of the public. Generally, doctors, lawyers, accountants and other professionals. There are some other businesses that are exempt, but as far as real estate investing, you’ve found the jackpot.

Another reason to set up a company is that some states and other government agencies require either a U.S. social security number or a federal tax I.D. number to invest in foreclosed properties. With an LLC, even non-U.S. citizens can apply for a federal tax I.D. number.

Summary of LLC benefits for North Carolina:

·           Allows for partnerships with limited liability.

·            Protects personal assets of owners or members.

·           One owner/member allowed in all states, except Massachusetts.

·           Does not require annual shareholder meetings, like Chapter C and S corporations.

·            Favorable tax status – can be set up and taxed at owner’s tax rate (default) or as a company (requires filing other paperwork).