A. David Aymond, Attorney at Law, LL.M. in Taxation        
209 Highway 22, Madisonville, Louisiana (985) 792-5220            27455 Hwy. 22, Ste. A, Ponchatoula, Louisiana (985) 845-3414

Louisiana LLC, Corporation or Partnership

SHOULD I OPERATE IN A CORPORATION, LLC orPARTNERSHIP?

You want to start a new business, do you form an LLC, corporation or partnership?  Below is a brief overview of these business entities for your review.  If the business is in Louisiana, seek the advice of a louisiana attorney as rules vary from state to state.

STARTING A NEW BUSINESS IN LOUISIANA - SINGLE OWNER
 

As the only owner of a new business, your choices are to operate as a sole proprietorship, Limited Liability Company (LLC) or Corporation.  For a small business owner you want to limit your personal liability and reduce your taxes.  Tax consequences require that you look to federal income tax and liability for self employment taxes. The income tax treatment of an LLC, a Corporation and Partnerships are discussed briefly herein.

Operating as a sole proprietorship is generally a good income tax result, but you are not shielded from personal liability.  To obtain this liability shield you may want to form a limited liability company (LLC) or a corporation.   If you form a corporation,  most likely you will need to elect Subchapter S (Sub S corporation) status for Federal Income tax purposes to avoid the double taxation of a regular C corporation.  The  LLC is the most flexible of all of these alternatives, as you can chose your status for federal tax purposes.  


STARTING A NEW BUSINESS - TWO OR MORE PERSONS

If two or more persons will be equity owners when they start a business, then they must operate either as a partnership, corporation or limited liability company aka an LLC.  A partnership can be either a general partnership or a limited partnership. If a corporation is the form chosen, it is likely that sub S corporation status will be elected for Federal income tax treatment.  The LLC has become the most used business entity in Louisiana for small or family owned business start ups.  The reason for this is the LLC provides limited liability to the member or members and allows a choice of how the IRS will treat the business for income tax purposes.  The LLC can be taxed as a corporation and elect Sub S status or elect to be taxed as a partnership.  Either provides flow through taxation to the members. However, the self employment tax effect is different.  Electing tax treatment for the LLC as a Sub S corporation or partnership does not change the Louisiana law status i.e. for louisiana law purposes you are an LLC and will be treated as an LLC for limited liability purposes, record keeping requirements etc. 

FORMING AN LLC IN LOUISIANA

Each state has its own LLC laws.  The LLC is easy to create in Louisiana and lengthy statutory rules are adopted to govern its formation and operation.  You will need Articles of Organization and an Operating Agreement for the new LLC.  Also, Louisiana requires an initial report and that the LLC designate an agent for service of process.  Caveat: Louisiana LLC law provides default rules that may result in unintended consequences. Example - Assume three members that desire membership percentages of 20/30/50.  Louisiana law would give each an equal vote in the company, unless you specify that voting interest tracks percentage of ownership.  Most people are very surprised by this outcome.  There are many other LLC laws that you may want to modify.  

CHOICE OF LLC, PARTNERSHIP, CORPORATION, LIMITED PARTNERSHIP

In conclusion, choosing the right business form for your new business requires you consider many factors and good legal and tax advice.  Business structures such as the LLC or Sub S corporation have specific state law rules and federal tax law rules that limit who can be a shareholder, the type of equity ownership etc.  Consult a tax attorney or Louisiana lawyer familiar with these laws. 

CONVERSION OF ONE BUSINESS FORM TO ANOTHER

If you want to convert from an LLC to a Corporation, doing so could have substantial and possibly detrimental tax consequences.  Make sure you check with your tax lawyer or CPA to assure this is in your best interest.  See also our section on contracts and business law for more information on Corporation, Partnership and LLC issues. 


Contact A. David Aymond, LLC, Attorney at Law to form you new LLC, Corporation or partnership.  .
























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The information on this website is for general information purposes only and should not be relied upon for your individual legal or tax situation. Each individual situation has its distinctive facts and you should seek the advice of a licensed attorney for your specific questions and legal needs Nor does visiting this site constitute an attorney/client relationship..  
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