Крестьянское фермерское хозяйство (КФХ) — это объединение людей (по родственным связям или характеру деятельности) с целью производства, обработки, хранения, доставки и сбыта с/х продукции на принципах долевого участия в совместном владении имуществом. Создать индивидуальное фермерское хозяйство может даже один человек. Регистрация КФХ в виде юридического лица не обязательна, однако фермеры по своей инициативе могут зарегистрироваться как юрлицо, на основании ст. 86.1 ГК РФ. Привлекательны также в этом виде бизнеса поддержка государства, создание благоприятных условий для начала деятельности и налоговые льготы. Как открыть КФХ — этому посвящена сегодняшняя статья.
Федеральные властные структуры, органы субъектов РФ, ОМСУ должны оказывать всяческой воздействие фермерству как малому предпринимательскому бизнесу (ст. 2 №74 — ФЗ):
Если в фермерском хозяйстве более одного человека, они должны заключить между собой соглашение (
У людей, которые занимаются сельскохозяйственной деятельностью, часто возникают вопросы касательно дальнейшего развития дела, оформления по закону. Есть несколько вариантов, начиная от ООО и заканчивая ИП. Все эти формы влияют на налоги, отчетность по ним, ответственность. Кроме того, у фермеров есть привилегия оформления КФХ (крестьянское, фермерское хозяйство). Мало кто разбирается в этих тонкостях и вообще знает, чем отличается одно понятие от другого. А между тем, неправильно оформив статус, можно понести убытки.
Под ИП понимают одно лицо, которое имеет право на всех основаниях заниматься коммерческой деятельностью. Под КФХ рассматривают общину, связанную родственными связями или обладающую на других основаниях общим имуществом, которая ведет общую сельскую деятельность. Такие люди могут производить продукцию, а также заниматься ее транспортировкой, организовывать хранение и реализацию. Главное условие тут в том, что работа должна относиться к сельскохозяйственной отрасли.
В обоих случаях невозможна регистрация в качестве юридических лиц, несмотря на то, что формально в КФХ могут быть такие поправки по закону. Но на практике это невозможно. ИП и КФХ начинают свою деятельность с момента регистрации, а прекратить могут, подав соответствующие документы. В целом многие вообще приравнивают эти два понятия. Различие лишь в том, что при фермерском сообществе можно регистрировать сразу общину, а деятельность должна быть сельскохозяйственной. В КФХ члены должны проявлять личное участие, делить расходы и прибыль.
На данный момент во многих местах предприниматели предпочитают регистрировать именно КФХ вместо ИП. Особенно актуально для тех регионов, где упор делается именно на развитие сельскохозяйственной сферы. Сюда относится, например, Ростовская область и Воронежская. Насчет ИП в плане регистрации действуют следующие принципы:
Оформление происходит по месту регистрации или в налоговой службе по месту временной прописки.
Для правильности процедуры нужно подавать паспорт и заявление о государственной регистрации в качестве индивидуального предпринимателя.
Все данные в случае положительного результата вносятся в реестр, общий для всех ИП.
Одно лицо только раз может получить такой статус.
С КФХ есть отличия. Например, не нужно регистрировать всех членов общины. Должен выбираться глава, который получает статус ИП. После этого он может получить необходимый статус для своей организации, по месту прописки. Заявление все равно оформляется с просьбой о создании КФХ, но глава прилагает к нему лишь свой паспорт. Данные в общий реестр тут вносятся на таком же основании, что и о предпринимательстве. В обоих случаях срок регистрации занимает пять дней (выходные и праздники не считаются).
Ключевым отличием между двумя статусами является именно членство. ИП может быть лишь один человек. Даже если он собирается открыть свою фирму или бизнес, только один человек имеет право отвечать перед налоговыми органами. Не получится открыть индивидуальное предпринимательство даже на двоих, и при условиях родственных связей. С КФХ действуют другие правила:
ими могут быть супруги, их дети, братья и сестры, отцы и матери, более дальние родственники;
их количество не должно превышать пятерых человек.
На первый взгляд, кажется, что надобность в КФХ вообще не возникает, ведь зачем родственникам такие сложности? Но на деле, законодательно урегулировав все вопросы, можно в будущем избавить себя от многих проблем и рисков. Такой статус подразумевает общую или долевую собственность на все имущество. Речь идет только о тех объектах, которые оговорены в соглашении между членами, поэтому его заключение является обязательным. Если один член захочет выйти из общины, то имущество не делится. Его просто выплачивают компенсацию, равную стоимости его доли. Кроме того, все люди в хозяйстве могут производить только сельскохозяйственную продукцию, они сами обычно участвую в производстве. Зачастую также речь идет о членах, которые имеют достаточно обширные участки земли и работают на них.
Человек, который получил статус ИП, полностью отвечает за всю деятельность его организации. Все расходы и проколы ложатся на него, он же отвечает перед налоговыми органами. В КФХ действует субсидированная ответственность всех членов. То есть в случае спорной ситуации глава хозяйства не должен брать на себя регулирование всех вопросов. В отличие от ИП, где действует на выбор возможность отдать предпочтение или общей системе налогообложения, или упрощенной, хозяйство имеет право еще и на сельскохозяйственный налог.
Многие выбирают КФХ из-за того, что здесь первые пять лет нет необходимости платить налог на доход физических лиц, составляющий 13% от общих средств. А в остальном здесь также нужно выплачивать земельный и транспортный налоги, делать страховые взносы, выплачивать НДС. Отчетность сдается в те же сроки, что и ИП.
Многие хозяйства выбирают все равно общую систему обложения, чтобы не терять клиентов и заказчиков, которые работают именно в ней. Для снижения своей налоговой нагрузки им необходимо закупать товары, которые учитывают НДС, поскольку только так можно избежать убытков. Но на практике самый выгодный вариант – это выбор сельскохозяйственного налога.
Несмотря на схожесть регистрации обоих статусов, КФХ имеет мелкие различия, которые стоит учитывать. Она осуществляется также в налоговых органах, по месту организации основной деятельности хозяйства. Необходимо собрать следующие документы:
заявление об организации хозяйства, заверенное нотариально и имеющее подпись главы;
перечень выбранных кодов ОКВЭД.
Особенное внимание стоит уделить соглашению. Конечно, ИП такой документ не нужен, так как он один несет ответственность за свою деятельность. Здесь же правильность заполнения убирает риски и недопонимание в будущем, разграничивает обязанности и права всех лиц. Соглашение должно содержать информацию о том, кто является главной хозяйства, обо всех членах, их обязанностях, о том, в каком порядке будет происходить управление. Там же указывают все имущественные объекты, входящие в общее пользование и правила приема и выхода новых членов. То, как будут распределяться доходы, также указывается в документе.
По существу, такое соглашение – договор совместной деятельности. Несмотря на то что налоговые органы регистрируют только главу хозяйства, а на членов не обращают внимания, соглашение все равно станет решающей бумагой при возникновении различных споров. На стадии регистрации не нужно давать никаких документов о земельных участках.
Если все положения соблюдены, хозяйство получает целый пакет бумаг. Сюда входит отдельное свидетельство главы, постановление на учет в налоговых органах, выписки о занесении в общий реестр. Далее КФХ нужно поставить на учет в органах статистики и давать туда данные по принципу, актуальному и для ИП. Обычно такие органы посылают письма о том, когда нужно проводить оформление. По необходимости изготавливается также и печать. Несмотря на то что для индивидуального предпринимателя она является обязательной, для хозяйства такой нужды нет.
Довольно распространена практика аренды земельных участков у государственных служб. Для КФХ в этом вопросе положены льготы и упрощенное оформление, что крайне выгодно для членов. Необходимо в этом случае составлять заявление, с указанием целей аренды, условиями, сроками и так далее. Но на участке можно заниматься только сельскохозяйственной деятельностью.
Как провести реорганизацию КФХ (юл) в ООО и КФХ (ИП)?
Здравствуйте Екатерина.
Как провести такую реорганизацию? Какой это будет вид реорганизации? Возможно ли разделение? или лучше это сделать каким либо другим способом? Екатерина
КФХ путем реорганизации, можно перевести путем разделение на два юридических лица (ООО) или путем преобразования в одно ООО, но никак не на ИП.
При разделении на два ООО, потом можно одно из ООО перевести на ИП, это трудоемкий процесс но что сделаешь, так проще.
И так, для реорганизации Нужно принимать решение о реорганизации КФХ путем разделения или же путем преобразование как выше указал и уведомить ИФНС (форму можете скачать по ссылке :http://www.consultant.ru/docum… )согласно
Федеральному закону от 08.08.2001 N 129-ФЗ «О государственной регистрации юридических лиц и индивидуальных предпринимателей» Статья
13.1. Уведомление о реорганизации юридического лица
1. Юридическое лицо в течение трех рабочих дней после даты принятия решения о его реорганизации обязано в письменной формесообщить в регистрирующий орган о начале процедуры реорганизации, в том числе о форме реорганизации, с приложением решения о реорганизации. В случае участия в реорганизации двух и более юридических лиц такое уведомление направляется юридическим лицом, последним принявшим решение о реорганизации либо определенным решением о реорганизации. На основании этого уведомления регистрирующий орган в срок не более трех рабочих дней вносит в единый государственный реестр юридических лиц запись о том, что юридическое лицо (юридические лица) находится (находятся) в процессе реорганизации.
ОБОСНОВАНИЕ:
В соответствии с п.3 статьи 23 Закона № 74-ФЗ3.
Крестьянские (фермерские) хозяйства, которые созданы как юридические лица в соответствии с Законом РСФСР от 22 ноября 1990 года N 348-I «О крестьянском (фермерском) хозяйстве», вправе сохранить статус юридического лица на период до 1 января 2021 года.
Согласно статье 57
1. Реорганизация юридического лица (слияние, присоединение, разделение, выделение, преобразование) может быть осуществлена по решению его учредителей (участников) или органа юридического лица, уполномоченного на то учредительным документом.
При преобразовании юридического лица одного вида в юридическое лицо другого вида (изменении организационно-правовой формы) к вновь возникшему юридическому лицу переходят права и обязанности реорганизованного юридического лица в соответствии с передаточным актом (статья 59 Гражданского кодекса).
Нормы Федерального закона «Об обществах с ограниченной ответственностью» не содержат запрета на создание общества в результате реорганизации крестьянского фермерского хозяйства.
Таким образом Вы вправе в соответствии с Законом КФХ перевести на ООО обратившись в налоговой орган с перечьнем документов согласно Федеральному закону от 08.08.2001 N 129-ФЗ
Статья 14. Документы, представляемые при регистрации юридического лица, создаваемого путем реорганизации
1. При государственной регистрации юридического лица, создаваемого путем реорганизации (преобразования, слияния, разделения, выделения), в регистрирующий орган представляются следующие документы:
а) подписанное заявителем заявление о государственной регистрации каждого вновь возникающего юридического лица, создаваемого путем реорганизации, по форме, утвержденной уполномоченным Правительством Российской Федерации федеральным органом исполнительной власти…
б) учредительный документ юридического лица, за исключением случая, если юридическое лицо будет действовать на основании типового устава, предусмотренного подпунктом «е» пункта 1 статьи 5 настоящего Федерального закона;
г) договор о слиянии в случаях, предусмотренных федеральными законами;
д) передаточный акт или разделительный баланс;
е) документ об уплате государственной пошлины;
ж) документ, подтверждающий представление в территориальный орган Пенсионного фонда Российской Федерации сведений в соответствии с подпунктами 1 — 8 пункта 2 статьи 6 и пунктом 2 статьи 11 Федерального закона от 1 апреля 1996 года N 27-ФЗ «Об индивидуальном (персонифицированном) учете в системе обязательного пенсионного страхования» (далее — Федеральный закон «Об индивидуальном (персонифицированном) учете в системе обязательного пенсионного страхования») и в соответствии с частью 4 статьи 9 Федерального закона «О дополнительных страховых взносах на накопительную пенсию и государственной поддержке формирования пенсионных накоплений»
Удачи ВАм
90000 Corporate entity legal definition of Corporate entity 90001 90002 corporation 90003 90004 n. an organization formed with state governmental approval to act as an artificial person to carry on business (or other activities), which can sue or be sued, and (unless it is non-profit) can issue shares of stock to raise funds with which to start a business or increase its capital. One benefit is that a corporation’s liability for damages or debts is limited to its assets, so the shareholders and officers are protected from personal claims, unless they commit fraud.For private business corporations the Articles of Incorporation filed with the Secretary of State of the incorporating state must include certain information, including the name of the responsible party or parties (incorporators and agent for acceptance of service), the amount of stock it will be authorized to issue, and its purpose. In some states the purpose may be a general statement of any purpose allowed by law, while others require greater specificity. Corporation shareholders elect a board of directors, which in turn adopts bylaws, chooses the officers and hires top management (which in smaller corporations are often the directors and / or shareholders).Annual meetings are required of both the shareholders and the Board, and major policy decisions must be made by resolution of the Board (which often delegates much authority to officers and committees). Issuance of stock of less than $ 300,000, with no public solicitation and relatively few shareholders, is either automatically approved by the state commissioner of corporations or requires a petition outlining the financing. Some states are considered lax in supervision, have low filing fees and corporate taxes and are popular incorporation states, but corporations must register with Secretary of States of other states where they do substantial business as a «foreign» corporation.Larger stock offerings and / or those offered to the general public require approval by the Securities and Exchange Commission after close scrutiny and approval of a public «prospectus» which details the entire operation of the corporation. There are also non-profit (or not for profit) corporations organized for religious, educational, charitable or public service purposes. Public corporations are those formed by a municipal, state or federal government for public purposes such as operating a dam and utility project.A close corporation is made up of a handful of shareholders with a working or familial connection which is permitted to operate informally without resolutions and regular Board meetings. A de jure corporation is one that is formally operated under the law, while a de facto corporation is one which operates as if it were legal, but without the Articles of Incorporation being valid. Corporations can range from the Corner Mini-Mart to General Electric. (See: articles of incorporation, bylaws, board of directors, close corporation, public corporation, de jure corporation, de facto corporation, shareholder, stock, securities) 90005 90004 CORPORATION.An aggregate corporation is an ideal body, created by law,
composed of individuals united under a common name, the members of which
succeed each other, so that the body continues the same, notwithstanding the
changes of the individuals who compose it, and which for certain purposes is
considered as a natural person. Browne’s Civ. Law, 99; Civ. Code of Lo. art.
418; 2 Kent’s Com. 215. Mr. Kyd, (Corpor. Vol. 1, p. 13,) defines a
corporation as follows: «A corporation, or body politic, or body
incorporate, is a collection of many; individuals united in one body, under
a special denomination, having perpetual succession under an artificial
form, and vested by the policy of the law, with a capacity of acting in
several respects as an individual, particularly of taking and granting
property, contracting obligations, and of suing and being sued; of enjoying
privileges and immunities in common, and of exercising a variety of
political rights, more or less extensive, according to the design of its
institution, or the powers conferred upon it, either at the time of its
creation, or at any subsequent period of its existence.»In the case of
Dartmouth College against Woodward, 4 Wheat. Rep. 626, Chief Justice
Marshall describes a corporation to be «an artificial being, invisible,
intangible, and existing only in contemplation of law. Being the mere
creature of law, «continues the judge,» it possesses only those properties
which the charter of its creation confers upon it, either expressly or as
incidental to its very existence. These are such as are supposed best
calculated to effect the object for which it was created.Among the most
important are immortality, and if the expression may be allowed,
individuality properties by which a perpetual succession of many persons are
considered, as the same, and may act as the single individual, They enable a
corporation to manage its own affairs, and to hold property without the
perplexing intricacies, the hazardous and endless necessity of perpetual
conveyance for the purpose of transmitting it from hand to hand. It is
chiefly for the purpose of clothing bodies of men, in succession, with these
qualities and capacities, that corporations were invented, and are in use.»
See 2 Bl. Corn. 37.
90007 2. The words corporation and incorporation are frequently confounded,
particularly in the old books. The distinction between them is, however,
obvious; the one is the institution itself, the other the act by which the
institution is created.
90007 3. Corporations are divided into public and private.
90007 4. Public corporations, which are also called political, and sometimes
municipal corporations, are those which have for their object the government
of a portion of the state; Civil Code of Lo.art. 420 and although in such
case it involves some private interests, yet, as it is endowed with a
portion of political power, the term public has been deemed appropriate.
90007 5. Another class of public corporations are those which are founded for
public, though not for political or municipal purposes, and the, whole
interest in which belongs to the government. The Bank of Philadelphia, for
example, if the whole stock belonged exclusively to the government, would be
a public corporation; but inasmuch as there are other owners of the stock,
it is a private corporation.Domat’s Civil Law, 452 4 Wheat. R. 668; 9
Wheat. R. 907 8 M’Cord’s R. 377 1 Hawk’s R. 36; 2 Kent’s Corn. 222.
90007 6. Nations or states, are denominated by publicists, bodies politic,
and are said to have their affairs and interests, and to deliberate and
resolve, in common. They thus become as moral persons, having an
understanding and will peculiar to themselves, and are susceptible of
obligations and laws. Vattel, 49. In this extensive sense the United States
may be termed a corporation; and so may each state singly.Per Iredell, J. 3
Dall. 447.
90007 7. Private corporations. In the popular meaning of the term, nearly
every corporation is public, inasmuch as they are created for the public
benefit; but if the whole interest does not belong to the government, or if
the corporation is not created for the administration of political or
municipal power, the corporation is private. A bank, for instance, may be
created by the government for its own uses; but if the stock is owned by
private persons, it is a private corporation, although it is created by the
government, and its operations partake of a private nature.9 Wheat. R. 907.
The rule is the same in the case of canal, bridge, turnpike, insurance
companies, and the like. Charitable or literary corporations, founded by
private benefaction, are in point of law private corporations, though
dedicated to public charity, or for the general promotion of learning. Ang.
& Ames on Corp. 22.
90007 8. Private corporations are divided into ecclesiastical and lay.
90007 9. Ecclesiastical corporations, in the United States, are commonly
called religious corporations they are created to enable religious societies
to manage with more facility and advantage, the temporalities belonging to
the church or congregation.90007 10. Lay corporations are divided into civil and eleemosynary. Civil
corporations are created for an infinite variety of temporal purposes, such
as affording facilities for obtaining loans of money; the making of canals,
turnpike roads, and the like. And also such as are established for the
advancement of learning. 1 Bl. Com. 471.
90007 11. Eleemosynary corporations are such as are instituted upon a
principle of charity, their object being the perpetual distribution of the
bounty of the founder of them, to such persons as he has directed.Of this
kind are hospitals for the relief of the impotent, indigent and sick, or
deaf and dumb. 1 Kyd on Corp. 26; 4 Conn. R. 272; Angell & A. on Corp. 26.
90007 12. Corporations, considered in another point of view, are either sole
or aggregate.
90007 13. A sole corporation, as its name implies, consists of only one
person, to whom and his successors belongs that legal perpetuity, the
enjoyment of which is denied to all natural persons. 1 Black Com.469. Those
corporations are not common in the United States. In those states, however,
where the religious establishment of the church of England was adopted, when
they were colonies, together with the common law on that subject, the
minister of the parish was seised of the freehold, as persona ecclesiae, in
the same manner as in England; and the right of his successors to the
freehold being thus established was not destroyed by the abolition of the
regal government, nor can it be divested even by an act of the state
legislature.9 Cranch, 828.
90007 14. A sole corporation can not take personal property in succession; its
corporate capacity of taking property is confined altogether to real estate.
9 Cranch, 43.
90007 15. An aggregate corporation consists of several persons, who are ‘
united in one society, which is continued by a succession of members. Of
this kind are the mayor or commonalty of a city; the heads and fellows of a
college; the members of trading companies, and the like.1 Kyd on Corp. 76;
2 Kent’s Com. 221 Ang. & A. on Corp. 20. See, generally, Bouv. Inst. Index,
h.t. 90005.90000 Corporate Entity | UpCounsel 2020 90001 90002 90003 A corporation is a type of corporate entity that is formed specifically to perform activities while being officially treated in many ways as an individual.8 min read 90004 90005
90006 90007 Corporate Entity 90008 90009 90010 A corporation is a type of corporate entity that is formed specifically to perform activities, such as running a business, while being officially treated in many ways as an individual. Although it may consist of many different people, such as directors, officers, and shareholders, a corporation is a legal entity in and of itself.90005 90010 Separate from all others, a corporation may, among many other things: 90005 90014
90015 Sue and be sued 90016
90015 Buy property 90016
90015 Open a bank account 90016
90015 Participate in contracts 90016
90015 Issue stock 90016
90025 90010 Everyone who buys stock in a corporation owns a part of it. Directors and officers control the corporation and oversee its operations. Yet the corporation legally remains a completely distinct entity from all of them. 90005 90010 Additionally, the artificial form of the corporation allows for perpetual succession.So, it may technically live forever unless it is dissolved. 90005 90006 90007 Process of Forming a Corporation 90008 90009 90010 90007 Articles of Incorporation 90008 are filed with the Secretary of State in the state where the corporation wishes to be registered. That does not need to be the same state where the corporation will do business. There are some states which are noted for having very favorable implications for companies that register in them. However, that means the corporation will be required to register as a «foreign» corporation in the states where they actually conduct their business operations.90005 90010 A 90007 Board of Directors 90008 is elected by the shareholders. 90007 Annual Meetings 90008 of the Board and the shareholders is required. 90005 90010 90007 Stock Issuance 90008 methods are the main difference between closely held corporations and publicly traded companies. When there is public solicitation for the sale of shares, in an Initial Public Offering (IPO) for instance, there are a great many more regulations and the Security and Exchange Commission (SEC) may become involved.90005 90006 90007 Corporate Entities: C Corporation 90008 90009 90010 C Corporations are the most sophisticated and complex organization of all the corporate entities. All the major companies in the country, including those which are publicly traded on stock exchanges, are C corporations. 90005 90010 A C corporation truly is a separate legal entity. Shares may trade hands, upper management and board members may come and go. But C corporations last forever unless they are completely dissolved.90005 90010 90007 Advantages of a C Corporation 90008 90005 90010 The biggest advantage of C corporations is protection from liability. It is harder to «pierce the corporate shield» of a C corporation than any other corporate entity. Shareholders may lose their entire investments if the business goes under, but they will not be liable to lose their homes or any other personal assets if the corporation goes bankrupt or is subject to significant losses in litigation. 90005 90010 There are other advantages to forming a C corporation, as well.90005 90014
90015 Venture Capitalists (VC) and other high-rolling investors will usually only put up funds for C corporations. 90016
90015 Stock options can easily be granted to individuals for any number of reasons. 90016
90015 The stock itself can be easily bought and sold, usually with little effect from change in percentage of ownership. 90016
90015 No limit on the number of shareholders, who can be from anywhere in the world or be other corporate entities. 90016
90015 C corporations exist in perpetuity, beyond the existence of its employees or shareholders.90016
90015 Many tax advantages, more deductions, and corporate tax rates are often lower than personal ones. 90016
90025 90010 90007 Disadvantages of a C Corporation 90008 90005 90010 The most common complaint about C corporations is «double taxation.» This refers to the fact that owners are not allowed to just take profits out of a C corporation. If company management decides that there are enough profits to share with those own stock, then the company will be issued dividends. 90005 90010 However, you will be taxed on those dividends.And the dividends were funded with profits that had already been taxed themselves. Thus, the concept of «double taxation.» 90005 90010 Another disadvantage to choosing a C corporation as your corporate entity is the complexity of the organization. The paperwork involved in forming a C corporation and running one is considerable. 90005 90006 90007 Corporate Entities: S Corporation 90008 90009 90010 The S in S corporation is in reference to the Internal Revenue Code, where you must elect sub-chapter S in order to have this particular corporate entity.90005 90010 S corporations are like lite versions of C corporations. They have very simple ownership and corporate structures. S corporations have only one class of stock and may not have more than a hundred shareholders. 90005 90010 90007 Advantages of an S Corporation 90008 90005 90010 S corporations have quite a few of the advantages of a C corporation and make a great choice for those who do not feel the need for a more complex corporate entity. 90005 90014
90015 S corporations provide very strong and effective corporate shields, similar to C corps, which offer a great deal of protection from liability to its owners.90016
90015 Profits and losses flow directly through to the owners of an S corporation, avoiding the problems of «double taxation.» 90016
90015 Shares are easily bought and sold. 90016
90015 S corporations exist in perpetuity, with no expiration dates required. 90016
90025 90010 90007 Disadvantages of an S Corporation 90008 90005 90010 The biggest problem with S corporation lies in its ownership restrictions. Shareholders are limited to: 90005 90014
90015 Individuals who are either US citizens or residents 90016
90015 Certain types of eligible trusts 90016
90015 Estates 90016
90025 90010 As stated above, no more than 100 shareholders are allowed, and there can only be one type of stock.S corporations may not issue convertible notes or stock options. 90005 90006 90007 Corporate Entities: LLC 90008 90009 90010 LLC stands for Limited Liability Company. An LLC is a sort of hybrid corporate entity, combining characteristics of a C corporation with that of a general partnership. While LLC members actively manage the business and control the company, the LLC is still its own legal entity, with its own privileges, powers, and liability. 90005 90010 When forming an LLC, there is a wide range of fees.Some ballpark figures would be: 90005 90014
90015 Filing fees — $ 250 to $ 600 90016
90015 Tax / accounting fees — $ 1,000 to $ 2,500 90016
90015 Legal fees — $$ 1,500 to $ 4,500 90016
90025 90010 90007 Advantages of an LLC 90008 90005 90010 The biggest advantage of an LLC is that you get the liability protection of a corporation, but you are not subject to «double taxation.» The profits and losses flow through to the members and are included with other personal income. 90005 90010 Still, there are other advantages to using an LLC as your corporate entity.90005 90014
90015 90007 Flexibility 90008 — Members can choose how they want to distribute cash or other assets and allocate profits and losses. Generally, this is all spelled out in the operating agreement. 90016
90015 90007 Simplicity 90008 — There is usually a lot less paperwork involved in forming an LLC compared to C and S corporations. 90016
90015 90007 Ownership 90008 — There are no citizenship restrictions with LLCs. They can have foreign ownership, and they can be owned by other entities, such as trusts, corporations or even other LLCs.90016
90025 90010 90007 Disadvantages of an LLC 90008 90005 90010 LLCs are an extremely popular form of corporate entity. Many startups choose to begin their official corporate lives this way. However, there can be some drawbacks. 90005 90014
90015 There have been cases when courts have held that a single owner LLC is not eligible for the personal liability protection usually available with this entity. And even with multiple owners, it can sometimes be somewhat easier to «pierce the corporate shield» of liability with an LLC than with a C or S corporation.90016
90015 Sometimes, though not often, LLC members might actually prefer being subject to lower corporate tax rates than having profits and losses flow through to their personal incomes. 90016
90015 Some states do not allow LLCs to exist in perpetuity like a C or S corporation. They may require that the entity cease to exist if one of the members departs, or that the original articles state an expiration date. 90016
90015 It is extremely difficult, if not impossible, to provide employees, consultants and others with stock options, issue convertible notes or any type preferred stock as you would find in C corporations.90016
90025 90006 90007 Corporate Entities: General Partnership 90008 90009 90010 A General Partnership is a corporate entity which allows multiple individuals or entities to own a business together. Many law and accounting firms choose this type of structure. 90005 90010 There are not any onerous filing requirements; usually just a Doing Business As (DBA) certificate will suffice. However, there should be a very detailed partnership agreement. While the DBA may only be $ 50 to $ 75, legal costs for the partnership agreement could be $ 1,000 to $ 2,500 to very much more.90005 90010 90007 Advantages of a General Partnership 90008 90005 90010 Basically, the advantage of a general partnership is that it can be a very simple and inexpensive corporate entity. Very little is required in the way of formalities, and the costs are usually low, not only to form a general partnership, but also to run one. 90005 90010 It is also an advantage that general partnerships do constitute a separate legal entity so that partnership interest can be transferred or issued to new partners.90005 90010 90007 Disadvantages of a General Partnership 90008 90005 90010 There are a few significant disadvantages to choosing a general partnership as your corporate entity. 90005 90014
90015 90007 Unlimited liability 90008 — This is the biggest problem. All partners are exposed to unlimited liability for all debts and liabilities of the partnership, including any actions of one of the partners during business activities. 90016
90015 90007 Fiduciary obligations 90008 — every partner has a fiduciary obligation to all the other partners regarding anything that has to do with the business.90016
90015 90007 No outside investors 90008 — General partnerships can not raise capital from others because it has no shares to sell. 90016
90025 90010 A Limited Partnerships allow multiple individuals or entities to own a business together, just like General Partnerships. And the General Partners have unlimited liability, as well, but there the resemblance ends. 90005 90010 Limited Partnerships are allowed to have outside investors, which makes it perfect for a limited- term or one-time project, such as a film production or real estate deal.These are sometimes called labor-capital partnerships because the General Partners will do the work, but the outside investors provide the capital and share in the profits. 90005 90010 90007 Advantages of a Limited Partnership 90008 90005 90010 The two big advantages of a Limited Partnership are: 90005 90014
90015 It allows outside investors who have at least some liability protection. 90016
90015 It has a flow-through tax structure, so partners are not subject to «double taxation.»90016
90025 90010 90007 Disadvantages of a Limited Partnership 90008 90005 90010 The obvious problem is that liability is only somewhat limited. While the partners are protected from liability arising from any actions by each other, they can be held liable for any negligent acts by employees. 90005 90006 90007 Corporate Entities: Sole Proprietorship 90008 90009 90010 Basically, a sole proprietorship is a corporate entity with one owner. It is not a separate legal entity; there is no legal distinction between the owner and the business.This is the easiest and most common type of corporate entity. 90005 90010 It is particularly suitable for service providers, and the costs are low. Usually, only a DBA certificate is required, for about $ 50 to $ 75. 90005 90010 90007 Advantages of a Sole Proprietorship 90008 90005 90010 There are three main advantages to choosing a sole proprietorship as your corporate entity. 90005 90014
90015 No «double taxation.» All profits and losses flow directly to the owner. 90016
90015 Simple — there is very little in the way of paperwork to create a sole proprietorship or to run one.90016
90015 Inexpensive — There are not a lot of legal or accounting fees. 90016
90025 90010 90007 Disadvantages of a Sole Proprietorship 90008 90005 90010 There are four major disadvantages to a sole proprietorship. 90005 90014
90015 90007 Unlimited liability 90008 — All of the owner’s personal assets are at risk for all the debts and liabilities of the business. 90016
90015 90007 Limited funding opportunities 90008 — Basically, the owner’s personal assets, credit, and investment are the most likely sources of funding.It is very difficult to get loans for a sole proprietorship without some kind of collateral. 90016
90015 90007 No stock 90008 — You can not allow outside investors because you have no stock to offer. 90016
90015 90007 No continuity 90008 — As sole owner, the business ceases to exist when you do. 90016
90025 90006 90007 Corporate Entities: Nonprofit 90008 90009 90010 Nonprofits are organized by a group to further a common goal. These would be charitable, educational, public service, political, religious organizations and more.90005 90010 Nonprofits may actually make a profit. In fact, they hope to, so that they have funds to contribute toward their goals. What they do not do is distribute funds to the organizers. 90005 90010 90007 Advantages of a Nonprofit 90008 90005 90010 Nonprofits are exempt from paying corporate income taxes on any profits generated from their activities. They are allowed to fundraise, take donations and accept grants tax-free. 90005 90010 Additionally, directors, officers, employees, and shareholders are all protected from personal liability.90005 90010 90007 Disadvantages of a Nonprofit 90008 90005 90010 There are extensive regulations which require compliance, and a few restrictions, as well. Nonprofits are not supposed to participate in any political campaigning. If the nonprofit has to close down, all its assets must be donated to another nonprofit. 90005 90010 Choosing a corporate entity is of the utmost importance. Not making the right decision the first time could have significantly costly consequences. Seeking expert advice is highly recommended.90005 90010 If you need help with corporate entities, you can post your legal needs on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb. 90005
.90000 Meaning, Advantages & Benefits in Business 90001 separate-legal-entity-representation
90002 The term «separate legal entity» is a fundamental concept in law that underlies business law and legal liability. 90003
90002 Not getting it right means that you could: 90003
90006
90007 trade in a way which makes you personally liable for the activities of a company, rather than the company itself 90008
90007 sign contracts which make you jointly and severally liable on a contract, when you do not intend to 90008
90007 sign a contract with a non-existent legal entity, and make the contract unenforceable 90008
90007 sign a contract with the wrong company within a group of companies 90008
90007 lead to unwanted legal proceedings.The proceedings could be brought for say breach of contract, fraudulent misrepresentation, a claim on an indemnity or some other cause of action against you, rather than the legal entity. If it’s successful, it can lead to personal liability on the claim. 90008
90017
90002 And it’s all avoidable. 90003
90002 Unless you’re already a lawyer you might want to read on, because they’re some things that you may not know, that may make a difference to your business and what you do next. 90003
90002 90003
90024 What does «separate legal entity» mean? 90025
building-block-entities
90002 A separate legal entity is a person recognised by law — a «legal person».The entity has its own legal rights and obligations, separate to those running and / or owning the entity. 90003
90002 That person could be a company, limited liability partnership, or any other entity recognised by law as having its own separate legal existence. 90003
90002 An «incorporated» entity — such as a company — is a separate legal entity. That’s a separate legal existence to its: 90003
90006
90007 founders: the natural persons that caused it to be formed 90008
90007 directors: those that control the company 90008
90007 shareholders: those that own the company.90008
90017
90002 In HL Bolton Engineering Co Ltd v TJ Graham Sons Ltd 1957 1 QB 159, Denning LJ described companies like this: 90003
human-body-parts
90042
90002 A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. 90003
90002 It also has hands which hold the tools and act in accordance with directions from the centre. 90003
90002 Some of the people in the company are mere [employees] and agents who are nothing more than hands to do the work and can not be said to represent the mind or will.90003
90002 Others are directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such. 90003
90051
90002 The law takes a flexible approach to recognising separate legal entities. 90003
90002 Telling the difference when it will — and when it will not — can matter. 90003
90002 90003
90058 What is a Legal Entity? 90059
legal-entity
90002 The hallmarks of a separate legal entity are that it can: 90003
90062
90007 90064 buy, sell and own property 90065 of any kind in its own name 90008
90007 90064 agree to legally binding contracts 90065, and 90008
90007 90064 sue and be sued 90065 in its own name.90008
90075
90002 As a consequence of these features, separate legal entities can: 90003
90062
90007 incur debt (which is created by a contractual relationship) 90008
90007 become creditors, by lending to others 90008
90007 own assets — ie property:
90062
90007 tangible: desks, chairs, pens and paper 90008
90007 intangible: such as intellectual property rights: copyright, designs, trade marks and confidential information 90008
90075
90008
90007 own real property, ie land, and 90008
90007 be liable to pay taxes (a statutory obligation) 90008
90075
90002 All the things that human beings can do (and are legal entities), from a legal perspective.90003
90002 This terms «separate legal entity» means the same thing as «separate legal personality», «separate legal existence», and «separate legal person». It’s an entity with the features described in bold above and recognised by law as having those features. 90003
90002 It’s this separate legal personality that makes companies attractive vehicles for business ventures. 90003
90002 Sometimes, to identify what a legal entity is, it’s more important to know when it’s definitely not a separate legal person.90003
90002 That’s next. 90003
90058 What is not a separate entity? 90059
misunderstanding-legal-persons
90002 Although it may seem like it, a separate legal entity is not: 90003
90006
90007 90064 a trade mark: 90065 a trade marks are personal property owned by a legal entity, whether it’s an individual, a company or other form of legal entity 90008
90007 90064 a domain name: 90065 a domain name is registered in the name of a legal entity. The legal entity is entitled to use it does not own it.The legal entity rents it from the relevant domain name registrar. 90008
90007 90064 a brand or trading name: 90065 these are in essence aliases for a legal entity. Like trade marks, the only true reference to a company for instance includes the use of the suffix with the company name. 90008
90007 90064 a group of companies: 90065 each company within the group is a legal entity. Just because there is a collection of companies with subsidiaries and parent companies does not mean that they have one single legal existence.They are all separate legal persons. 90008
90007 90064 a business 90065: «a business» could be:
90006
90007 a number of legal entities trading as a single business, 90008
90007 a single legal entity trading by itself without cooperation of other legal entities. 90008
90017
90008
90017
90002 It depends what is meant by use of the term «business». 90139 Below, we go through some of the possible interpretations, with subsidiaries, joint ventures, branches of a business, divisions of a business and accounting entities.90003
90002 There is a consequence to all this. 90003
90002 If you see an email using a particular domain name, it could be used so as to designate one or more legal entities within a group of companies. 90003
90002 It becomes a question of law decided on the facts of the case which separate legal entity on whose behalf the email was sent. Same with letters, and any other communication. 90003
90024 Changes of Name 90025
change-legal-person-name
90002 Here’s a common trap. 90003
90062
90007 You and I have our own names 90008
90007 We could sign a contract with one another 90008
90007 You could change your name 90008
90007 I could change mine 90008
90075
90002 Does that change who we are from a legal perspective? Are we no longer legally bound with one another under the contract, because we changed our names? 90003
90002 Well, no.We’re the same people. 90003
90002 And so it is with say, companies. 90003
90002 When they’re formed, private limited companies ( «Limited» or «Ltd» suffix), public companies ( «plc» suffix) and limited liability companies ( «LLC» suffix) are assigned a company number. 90003
90002 That company number never changes. 90003
90002 Ever. 90003
90002 However, the company’s name could be changed many times throughout its period of existence, and even during its liquidation or administration. 90003
90002 Those changes of name do not change the legal identity or existence of the company.Only its name. 90003
90002 It stands to reason therefore, that the only reliable way to identify a company is by checking 90064 its company number 90065. 90003
90002 90003
90058 Why is this legal concept important? 90059
importance-of-legal-entities
90002 Two main reasons. There are many others. 90003
90002 Liability rests with the company, rather than the shareholders, directors or company officers. 90003
90002 Also, other legal concepts in law are based on this separate entity concept.90003
90002 That includes these legal concepts: 90003
90062
90007 limited liability 90008
90007 piercing the corporate veil, of a single company, or a company operating within a group of companies 90008
90007 making legal binding contracts, and to determine:
90062
90007 to which entity legal obligations are owed 90008
90007 the legal entity in breach of contract, and 90008
90007 which legal entity is liable to pay damages 90008
90075
90008
90007 common designs, which give rise to joint and several liability 90008
90007 the separate participating parties in a conspiracy 90008
90007 the legal entity which carries strict liability for a tort, such as intellectual property infringement 90008
90007 the person which has vicarious liability for another 90008
90007 shareholders, and how their roles and responsibilities are divorced and separate to the roles and duties of directors — even if they are the same individual 90008
90007 the different roles, powers of directors and fiduciary duties for directors 90008
90007 which party is an agent and which is the principal 90008
90007 when partnerships arise by operation of law 90008
90075
90002 They all pretty much start with the concept of separate legal entities.90003
90002 Top of the list for most businesses is to take advantage of limited liability. Business activities can be structured using different legal entities, as subsidiaries or connected companies. Each of the shareholders in each of those entities has limited liability when they’re incorporated. 90003
90002 The basic concept is straightforward. 90003
90002 But in motion, things can get confusing if you do not know what you should be looking for. 90003
90002 90003
90058 Why have a separate legal entity? 90059
why-have-separate-person
90002 Primarily, businesses trade as companies.90003
90002 The company — which is a separate legal entity — insulates the individuals participating in the business from 90064 personal liability 90065 which may arise as a result of doing business. 90003
90002 In this way, the company: 90003
90062
90007 generates revenue, which is owned by the company 90008
90007 incurs expenses, which are payable by the company 90008
90007 attracts legal liability to pay taxes to taxation authorities, and 90008
90007 typically pays tax at lower rates than individuals.90008
90075
90002 The business owners and directors are protected from liability other than in limited circumstances (which essentially involve some sort of fraudulent conduct). 90003
90002 The insulation of shareholders and liability usually top the reasons why consider it important. 90003
90024 Joint Ventures 90025
joint-ventures
90002 Joint venture companies are a common tool to enable distinct projects, separately from existing companies. 90003
90002 Two or more independent businesses (ie: separate legal persons) may wish to cooperate to start a special project.90003
90002 Joint venture companies are often referred to as «special purpose vehicles», as they have a specific purpose for formation they: 90003
90062
90007 are jointly owned by the founding companies 90008
90007 may make profits which are owned by the joint venture company 90008
90007 buy and own assets 90008
90007 buy and lease property 90008
90007 licence intellectual property rights, such as software 90008
90007 have their own customers and suppliers 90008
90007 pay expenses, taxes, employees and consultants 90008
90007 return profits to the founding companies in agreed percentages 90008
90007 are sold off when successful 90008
90007 isolate the liabilities to the joint venture 90008
90007 can be made to fail gracefully, and be dissolved without affecting the founding companies 90008
90075
90002 90003
90024 Subsidiary Companies 90025
subsidiary-companies
90002 Some businesses operate as groups of companies — one parent company, with many subsidiaries which in turn have their own subsidiaries.90003
90002 Subsidiary companies might be setup below a parent company for a variety of reasons: 90003
90062
90007 As a means to organise the operations of a business 90008
90007 To siphon off risk to legal entities other than the parent company 90008
90007 Manage operations 90008
90007 Isolate specific assets and liabilities 90008
90007 Run a separate businesses within a larger company group. Each company might have a different function or specific role within a group of companies 90008
90007 Offset profits and losses between different companies within the group 90008
90007 To trade in a foreign jurisdiction to obtain benefits of a company within that country, such as:
90006
90007 the ability to trade without tariffs, such as in the European Union 90008
90007 obtain the benefit of lower tax rates.90008
90017
90008
90007 Attract outside investment without giving proprietary rights in the entire group of companies or in a parent company 90008
90075
90002 Whatever the reasons may be, subsidiaries also attract all the benefits of other separate legal entities — insulation of personal liability of the people that run them, work for them, and own them. 90003
90002 So this separate legal entity concept can be applied to obtain advantages in a number of different ways: 90003
90006
90007 to insulate the directors and owners of a single company from liability 90008
90007 in larger businesses, to separate out new projects and joint ventures in special purpose vehicles 90008
90007 trade in different countries with subsidiaries formed under local law 90008
90017
90002 And there are others.90003
90002 Also, parent companies are not liable for the debts of subsidiaries companies. The subsidiary is liable for its own debts. 90003
90002 That’s usually the case. 90003
90002 But if there has been series mismanagement of the subsidiary — the sort that attracts legal liability, such as sham companies — the parent company can be made liable for the debts of its subsidiary. 90003
90002 90003
90058 Different Types of Companies 90059
types-companies
90002 In the UK, you have: 90003
90006
90007 private limited companies, whether limited by shares or by guarantee, that use the suffix «Limited» or «Ltd» 90008
90007 private unlimited companies, which use the suffix «Unlimited» 90008
90007 limited liability partnerships, which use the suffix «LLP» 90008
90007 public companies, which use the suffix «PLC» 90008
90007 limited partnerships, and 90008
90007 community interest companies.These use the suffix «CIC». 90008
90017
90024 Is a partnership a separate legal entity? 90025
90002 The word «partnership» is often used in the business context which is not the same as in the legal sense. 90003
90002 We’re talking about a partnership under the Partnership Act here. 90003
90002 Under the Partnership Act, English law deems business relationships that meet a particular description to be a partnership. When the defined description of partnerships is satisfied, a partnership is deemed to exist automatically.90003
90002 A partnership: 90003
90062
90007 is not an incorporated legal entity 90008
90007 exists when two or more entities «carry on a business in common with a view of profit». That means a lot of business relationships are partnerships when they do not intend them to be — and probably do not know they are 90008
90007 does not have a legal personality separate from each of it’s individual partners (whether those partners are individuals or companies). 90008
90075
90002 So the short answer is «no»: a partnership (in the legal sense) is not a separate legal entity.That’s because it’s not an incorporated legal entity. 90003
90002 Companies are just as susceptible to becoming partners in a partnership as well. It most often happens when joint venture agreements are not set up properly or are administered in a way that falls into the definition of a partnership under the Partnership Act. 90003
90002 All of the participants in the partnership maintain their separate legal identity and are jointly and severally liable for contracts which one of the members of the partnership signs up to.That’s one of the reasons partnership and agency clauses are used in contracts. 90003
90024 Foreign Separate Legal Entities 90025
foreign-legal-entity
90002 English law also recognises legal entities which are accepted as legal entities in their country of formation. 90003
90002 In Bumper Development Corp Ltd v Commissioner of Police of the Metropolis [1991] 4 All ER 638, the UK Court of Appeal held that a Hindu temple was a separate legal entity. It had legal personality under the law of the state where it was created, India.90003
90002 In the US, an LLC (a limited liability company) is a separate legal person and entity, in the same way as an English PLC, limited company or limited liability partnership. 90003
90024 Is a trust a legal entity? 90025
trust-deed-legal-person
90002 Well, yes and no. We think it depends on how it is set up: 90003
90062
90007 The trustees of a trust hold assets on trust for the beneficiaries of the trust 90008
90007 The trustees are entitled to use the assets of a the trust to satisfy debts of the trust 90008
90007 A trust will be liable to pay tax and when the HMRC is notified of it, it will have a tax reference 90008
90007 It’s probably yes when the trustee is set up as a company 90008
90007 It’s probably no when the trustee (s) are individuals.90008
90075
90002 90003
90024 Example: Separate Legal Entity 90025
hercules
90002 When a company is formed it becomes a legal entity in its own right. That formation is known as «incorporation». 90003
90002 The company has its own «90064 legal personality 90065»: 90003
90062
90007 it is a legal person; 90008
90007 with its own legal identity; 90008
90007 separate to the individuals involved with the company. 90008
90075
90002 This legal separation means that the legal liability of the company is not the liability of: 90003
90062
90007 the shareholders 90008
90007 the directors 90008
90007 its employees, or 90008
90007 its consultants or contractors.90008
90075
90002 Companies have perpetual existence, subject to ongoing filing formalities to keep the company on the register of companies in the place it was formed. 90003
90002 Its legal existence survives the existence or participation of any directors and shareholders. That perpetuity of existence is a trait of the entity itself. The company’s existence ends when it is wound up and dissolved. 90003
90002 The documents which establish the company setup the legal relationship between the shareholders and the directors is known as its «internal constitution».It governs the legal relationship between the company, its directors and the shareholders. The internal constitution will not affect the continued legal existence of the company as a separate legal entity. 90003
90024 Origin of Separate Legal Entities 90025
salomon-origin
90002 This separate legal personality concept was first recognised by courts in case law in the famous case named Salomon v A Salomon & Co Ltd, decided in 1897. 90003
90002 In that case the House of Lords decided: 90003
90042
90002 Once a company is incorporated, it has a separate legal existence to the shareholders of the company … 90003
[The company] must be treated like any other independent person with its rights and liabilities appropriate to itself …, whatever may have been the ideas or schemes of those who brought it into existence.90051
90002 The Supreme Court affirmed the fundamental importance and authority of the principles in Salomon v Salomon in Prest v Petrodel Resources Ltd (2013). 90003
90024 What happened in Salomon v A Salomon and Co Ltd? 90025
skeleton-examination
90002 The facts of the case are more complicated than we’d like for example purposes. 90003
90002 Stripping back a lot of the detail (and glossing over a lot of it), this is what happened in Salomon v A Salomon: 90003
90042
90002 Aron Salomon ran a leather and boot-making business in his own name.90003
90002 He incorporated a business for his leather and boot-making business. He named it «A. Salomon and Co Ltd «. 90003
90002 So, he incorporated a previous business and contracted through the defendant company rather than in his own name. 90003
90002 When he incorporated the company, Mr Salomon took a series of security interests (essentially mortgages) over the assets of the company. 90003
90002 Business in the boot trade declined, and the company went into liquidation. 90003
90002 Salomon and Co Ltd defaulted on payment of the securities.Mr Salomon was sued by the liquidator (in the name of the company), claiming that Mr Salomon was liable for the debt. 90003
90002 The company was a separate person from Mr Salomon. Mr Salomon could not be made personally liable for the debts of the company. 90003
90051
90002 As a result, the company was liable on the contract sued on, and not the shareholders or directors. 90003
90002 That’s the essence of a company’s own separate legal existence. 90003
90002 The directors are not the company.Nor are the shareholders. Nor are the employees. 90003
90002 90003
90058 Difference between Sole Proprietors and Companies 90059
difference-companies-sole-proprietor
90002 In this example, we use a company as a separate legal entity. It could be any other form of entity with a separate legal existence. 90003
90024 Trading as a sole proprietor 90025
90002 When someone trades as an individual, they’re a «sole proprietor» or a «sole trader». 90003
90002 Here are some assumed facts in a simple example: 90003
90042
90062
90007 Bob Roberts is a sole trader.90008
90007 He provides IT services in his own name as a sole proprietor. 90008
90007 He trades as «Bob’s IT Services» 90008
90007 Bob is the legal entity which owns the business 90008
90007 Bob runs the business. 90008
90075
90051
90002 Bob signs all of the contracts, insurance contracts, contracts with customers and suppliers in his own name. Bob «is» the business. 90003
90062
90007 Tax returns are filed in Bob’s name 90008
90007 If a fine is imposed on the business, it is Bob that has to pay it 90008
90007 If an employee of Bob makes a mistake that gives rise to legal liability, it is Bob that’s liable for the employee’s mistakes.90139 That’s because employers are vicariously liable for acts of employees 90008
90075
90062
90007 If something goes wrong — say there is a breach of contract — Bob is personally liable to pay damages. 90008
90075
90002 Bob’s liability in all of these situations 90064 is unlimited 90065: all of his personal assets are at stake to pay taxes, the fine, damages for breach of contract, and the employee’s mistake. 90003
90002 It’s different if Bob forms a company and trades as a company, as was the case with Mr Salomon, above.90003
90024 Trading as a Company: 90025
tablet
90002 The company will have its own separate legal identity to Bob. 90003
90002 Like so … 90003
90042
90062
90007 Bob Roberts forms a company. He names it «Bob Roberts 90543 Limited 90544». 90008
90007 Bob Roberts Limited is a company limited by shares (just like in Salomon v A Salomon & Co Ltd) 90008
90007 Bob Roberts is a director and shareholder of Bob Roberts Limited 90008
90007 Bob Roberts 90543 Limited 90544 is the legal entity.90008
90075
90051
90002 What are the consequences of setting up the business for Bob? 90003
90002 It’s the company Bob Roberts Limited that is liable: 90003
90062
90007 to pay taxes 90008
90007 to pay the fine 90008
90007 make good the wrongdoing caused y the employee 90008
90007 pay the damages arising from the employee’s mistake, 90008
90075
90002 and not Bob. 90003
90024 Trading Names & Business Names 90025
90002 A trading name or business name is a name used by a business which is not its real name.It’s an alias for the legal entity. It’s analogous to a nickname for a natural person. 90003
90002 A few examples: 90003
90006
90007 Coca-Cola trades as «Coca-Cola», not «The Coca-Cola Company Inc». 90139 «Coca-Cola» is a trading name. 90139 «The Coca-Cola Company Inc» is the company name. 90008
90017
90584
90007 Microsoft Corporation is known as «Microsoft». «Microsoft» is the business name. 90008
90007 Facebook Inc trades as «Facebook». Again, «Facebook, Inc» is the company name, and «Facebook» is the trading name 90008
90017
90002 These companies became known and famous by their trading names, rather than by their formal company name.Who wants to use the full company name anyway? 90003
90002 Answer: When it gives rise to legal consequences if you do not. 90003
90024 Why use a Trading Name? 90025
trading-name-analysis
90002 Different companies adopt trading names for different reasons, the usual ones are: 90003
90006
90007 that’s how people are going to commonly refer to the company 90008
90007 trade names will be protected by registered and unregistered trade marks, not the full company name. 90008
90017
90002 Rare is the occasion when companies apply for registered trade mark protection for the full company name.90003
90002 However, it’s the company itself that owns the goodwill in the trading name or the registered trade mark. The trading name can not own property because it’s not a legal entity. 90003
90002 But when it comes to legal relationships — such as signing contracts or filing documents with regulatory authorities, these companies have to use their proper legal name — with the «Limited», «Inc» or whatever the appropriate suffix for the company is. 90003
90002 We run through an example on how to sign contract below and show the difference.90003
90002 90003
90058 Implications in Law 90059
hoops-in-law
90002 There are a series of recurring problems which are easily avoided. 90003
90002 A few careful steps here and there and you should remain in the clear, and avoid personal liability and other problems. 90003
90024 Properly identifying the legal entity 90025
90002 There is no substitute for doing a company search to locate the legal entity on the relevant register of companies. 90003
90002 Companies, LLPs and other incorporated legal entities are formed when the UK Registrar of Companies (trading as «Companies House») says so here.90003
90002 Doing a company search quickly and easily removes any doubt about: 90003
90062
90007 the continued existence of the company 90008
90007 its registered address 90008
90007 its registered company number 90008
90007 who controls it 90008
90007 whether it has filed what it is meant to have filed with the Registrar of Companies. 90008
90075
90002 It also show the 90064 status 90065 of the company. 90003
90002 If the company is not listed on the Register, it does not exist.That means the company can not enter into any contract — again, because it does not exist as a separate legal entity. 90003
90002 Seem obvious? 90003
90002 Well yes, but … 90003
90024 Contracts signed before a Company is formed 90025
90002 Sometimes business people 90064 sign contracts before companies are formed 90065 in anticipation of the company being formed. 90003
90002 Contracts signed in the name of the company can not be enforceable against the company, because it did not exist at the time.90003
90002 Just because the company comes into existence at a later date, after the contract was signed does not validate the contract. 90003
90002 Also, if the company has ceased to exist — ie dissolved — or is in liquidation, the Companies Register will show that. 90003
90002 If a company is dissolved, it has ceased to exist. 90003
90002 Again, it can not enter into contracts with others after it has ceased to exist. 90003
90002 The contract might be enforceable however against the individual signing it.90003
90024 Contracting parties: Who am I contracting with? 90025
90002 Back when companies were first made available over 100 years ago, incorporated companies were required to use the suffix «Limited» or the alternative «Ltd». 90003
90002 This was so that customers and suppliers knew that they were dealing with a company that had 90064 limited liability 90065. 90003
90002 That requirement still applies today, undiminished. 90003
90002 The name of a company must end with the suffix «Limited», «Ltd.»,» P.l.c. «, as the case may be.» LLP «applies to limited liability partnerships. 90003
90002 You might think that that’s just for the purposes of registering the company. 90003
90002 But it goes further. When it is a company trading, company suffix «Limited» or its permitted abbreviation, «Ltd» 90064 must 90065 be used. 90003
90002 Using our example above, «Bob Roberts» and «Bob Roberts Limited» are completely different legal entities. 90003
90002 So when a natural person signs a contract in their own name — and not that of the company — they become 90064 personally liable on the contract 90065.90003
personal-liability
90002 Suppose then that you run a business online. You have a website. But you do not: 90003
90062
90007 identify the company name in your terms of business 90008
90007 or in your privacy policy 90008
90007 or anywhere else on the site. 90008
90075
90002 The question is, what is the legal entity that hosts or owns the website? Who «is» the business? 90003
90002 Without reference to the full name of the company, it can not be the company that’s trading. 90003
90024 When do you use the full company name? 90025
gas-light
90002 If you’re trading as a company, you can not leave out the reference to the «Limited» or «Ltd».The company is legally required to identify itself properly. 90003
90002 Also, leaving out the full name of the company can lead to personal liability on the contract. 90003
90002 Also, the UK Companies Act requires companies to use its proper company name, registered company number, and registered address on 90064 all paperwork 90065 of the company. 90003
90002 This includes on: 90003
90006
90007 its paperwork, such as:
90006
90007 letters 90008
90007 invoices and business cards 90008
90007 email correspondence, usually in footers 90008
90007 purchase orders 90008
90007 statutory filings 90008
90017
90008
90007 its website (s), in fact 90064 any communication 90065 90008
90007 applications for registration of intellectual property rights, whether its trade marks, designs or patents 90008
90007 registering domain names 90008
90007 contracts to:
90006
90007 preserve confidentiality 90008
90007 licence know-how 90008
90007 enter a lease for property 90008
90007 buy or sell property 90008
90017
90008
90007 contracts of employment 90008
90017
90002 Not doing so means the directors and employees expose themselves to the risk that they will be found to be trading as individuals, particularly when email is used to enter into contracts with customers and suppliers.90003
90002 Do not take my word for it. A specific piece of legislation says so. 90003
90002 Once you start using a company, it’s important to use the company name, in the form appears on the Register of Companies, and observe the requirements for execution of contracts and other documents to create legally binding contracts. 90003
90024 What if you do not use the company name when you should? 90025
legal-consequence
90002 There’s a (very) good argument that it’s not the company trading. It is someone other than the company that is trading.90003
90002 If that’s a director of the company, it’s an express route past limited liability otherwise available to directors and shareholders of companies. 90003
90002 That’s because it’s not the company in the legal relationship. It’s probably the individuals organising the business activity. 90003
90024 Company vs Shareholder 90025
90002 You may need to sign a contract as a shareholder of a company. In those cases, you’d sign as in your own personal name. It’s important to get the signing provisions correct.90003
90002 90003
90058 FAQs: Separate Legal Entities 90059
faqs-companies
90024 1. What are «divisions» of a legal entity? 90025
90002 Sometimes you might see wording such as «[Division Name], a division of [Legal Entity Name]». 90003
90002 What does this mean? 90003
90002 Sometimes it means that «[Division name]» is a reference to a business unit within «[Legal Entity Name]». 90003
90002 So the division equates to a business name for the [Legal Entity Name]. 90003
90002 Other times «division» can mean a reference to one or more legal entities.90003
90002 It’s really anyone’s guess — you need to make enquiries to find out for sure. 90003
90002 You’d do that in part by doing company searches to find out information on the true name of the business that is trading and holdings itself out as a «Division». 90003
90002 90003
90024 2. What are «branches» of a separate legal entity? 90025
90002 Many businesses have many branches or multiple offices, at separate physical addresses. 90003
90002 There’s usually nothing in principle preventing a business from incorporating a subsidiary of the parent company for each branch, and each branch being owned by a single subsidiary.90003
90002 Take the banking industry. It’s highly regulated. 90003
90002 UK banks are required to be owned by the legal entity which is regulated by the Financial Services Authority. A single bank might have dozens or 100s of branches. 90003
90002 As a result of the regulations governing the banking industry, banks are not able to form companies for each branch it may have — disregarding the administrative inefficiency of doing so. 90003
90002 Each branch is usually a property owned by the regulated bank.They’re owned by the same legal entity, such as HSBC Bank UK PLC, Lloyds Bank plc, Barclays Bank UK plc. 90003
90002 90003
90024 3. Does changing the name of a company create a new separate legal entity? 90025
90002 When a UK company is formed, it’s assigned a company number. It’s a registration number which uniquely identifies the company. 90003
90002 That registration number never changes. It’s a permanent unique identifier for that company. 90003
90002 The company name however, can change.All it takes is a resolution of the board of the company. 90003
90002 That does not change the legal identity of the company. It does not create a new separate legal entity. 90003
90002 It’s the similar situation when an individual changes their name by deed poll. They are the same person. it does not change any legal relationships the person has with others. 90003
90002 See for example this company. It has changed its name, but the company number did not change. 90003
90002 It’s the same legal entity.90003
90002 90003
90024 4. Are there differences between accounting entities and legal entities? 90025
90002 An «entity» for accounting purposes can mean different things. 90003
90002 There’s room for confusion between an accounting entity and a legal entity. 90003
90002 A legal entity or number of companies within a larger group can be grouped for accounting purposes in whatever way suits the companies, provided it complies with applicable regulatory requirements. 90003
90002 Likewise, a single company can be broken up into any number of accounting entities to track the profitability of different business units within it.90003
90002 90003
90058 Conclusions 90059
conclusions
90002 All of this may seem a bit basic. It is. 90003
90002 But when it’s in motion, it can be difficult to spot. 90003
90002 We’ve seen judges enter judgment against individuals for signing contracts in their own name, rather than in the name of a separate legal entity. Without much discussion. Because the law is so crystal clear. 90003
90002 It’s so easy to make a mistake a cause serious down the road. And even trainee solicitors have been known to not have a clear understanding of legal entities and how they’re properly identified.90003
90002 Do not make the same mistakes as others before you. 90003
90024 Process 90025
90002 Adopting a process to identify separate legal entities 90064 and 90065 the capacity in which you may need to sign a contract is a formula for success. 90003
90002 If you do not have a clear understanding of «the why» you are about to sign a contract in a particular way, you should not. 90003
90002 You may not need to speak to a lawyer, but you need to speak to someone to talk it through to get that clear understanding.90003
90002 Do not make the mistake of signing a business contract: 90003
90062
90007 in your own name, when you intend to sign for the company 90008
90007 in the name of the company, when you intend to sign on your own behalf, such as in your capacity as a shareholder 90008
90007 sign on behalf of one company when you intend to sign on behalf of another company. 90008
90075
90002 And use the «Limited», «Ltd» or «Plc» to identify the company as a company. 90003
90058 Our Business Solicitors 90059
business-solicitors-london
90002 We’re long serving business solicitors that have advised companies and individuals avoid problems such as those referred to above, often at the last minute.90003
90002 We’ve also helped companies pull themselves out of a bad spot after it would seem to be too late. 90003
90002 We advise small and medium sized businesses on: 90003 90002 For business legal advice, call us on +44 20 7036 9282 to speak with a business solicitor, or email us at
[email protected]. 90003
.90000 Everything You Need to Know 90001 90002 90003 Corporations are considered legal people. Non-corporation companies, such as a partnerships or sole proprietorships have no legal distinction from the owners. 3 min read 90004 90005
90006 A non-corporate entity is a legal entity that does not go through the incorporation process. Shareholders posses certain responsibilities and rights that owners of other legal entities do not have. A corporation can do the following: 90005 90008
90009 Enter into agreements 90010
90009 Borrow and loan money 90010
90009 Sue or be sued 90010
90009 Own assets 90010
90009 Pay taxes 90010
90009 Hire employees 90010
90021 90006 Corporations are considered legal people.Non-corporation companies, such as a partnerships or sole proprietorships have no legal distinction from the owners. This means that owners of such entities do not have the same legal protections as a corporate entity. However, starting a non-corporate entity is easier than a corporate entity, and registering a corporation comes with certain responsibilities. Moreover, corporations may be expensive to create, but this would depend on the state you live in. Further, corporate registration requires additional paperwork to register.90005 90024 Corporate Structure 90025 90006 Corporations hold three primary offices: 90005 90008
90009 Officers 90010
90009 Shareholders 90010
90009 Directors 90010
90021 90006 Shareholders comprise owners of the company, and they could act as officers or directors of the company. Each corporation should have a minimum of one director, allocate resources where necessary, and manage the business itself. Directors hold responsibility in choosing the officer who manages the daily affairs of the business.Non-corporations do not have a certain structure. 90005 90006 The raising of capital is harder for non-corporations when compared to incorporated entities. Corporations can raise capital through the selling of stock to the public. Corporations can also use such proceeds generated from stock sales to grow the company or pay debt obligations. A non-corporation can rely on an owner investment to provide financing to the company’s business activities. If a non-corporate owner does not have suitable credit, that person may not secure loans to finance the operation of the business.90005 90024 Entity Comparison 90025 90006 Corporations deal with more regulations and face state guidelines when compared to non-corporate entities. In addition, corporations must have a minimum of one annual meeting, where no meetings are required under non-corporate entities. Corporations should record meeting minutes and submit yearly reports with every state where transactions occur. Non-corporations are not required to file reports or keep meeting minutes with state officials. 90005 90006 It’s worth noting that states such as California and Delaware levy franchise taxes on corporations, but a partnership or sole proprietorship does not have to pay franchise taxes.Non-corporations do not have to submit financial statements, but corporations must submit the following: 90005 90008
90009 Balance sheets 90010
90009 Income statements 90010
90009 Cashflow statements 90010
90021 90006 Corporations differ from non-corporations when it comes to continuity. A corporation lasts forever, regardless of what happens to owners. This is not the case with LLCs or sole proprietorships, where the entity dissolves if a member exits or dies.However, a corporation is fully functional even as leadership roles change. When it comes to accountability, corporations provide more protections to owners. For instance, if a partnership gets into debt, the partners must pay for any business debt obligations from personal assets. 90005 90006 On the other hand, business debt obligations are separate from the owners, and creditors can not petition for the personal assets of the shareholders. Such protections also extend to LLCs. This also means that owners can participate regarding the division of profits and receive dividends.Non-corporate entities do not have such a structure, even such entities as LLCs are flexible enough to tailor the internal management structure in the same manner as a corporation. 90005 90006 Corporations are registered entities that are useful through all kinds of operations. While the precise legal status tends to vary based on jurisdiction, the most vital aspect of a business is in regards to liability. Such businesses as Toyota Motor Corporation, Microsoft Corporation, and The Coca-Cola Company are also registered corporations.Some businesses operate under other names. For instance, Google also operates under Alphabet, Inc. With that, most companies are created with the goal of providing for shareholders. Shareholders own a piece of the corporation and are responsible for payment of shares to the company treasury. 90005 90006 Overall, the corporation is created when a group of owners convene and retain stock. A corporation’s sole objective is in pursuit of profit, or charities, in the case of a non-profit corporation.90005 90006 To learn more about a non-corporate entity, you can post your need, or post your job on UpCounsel’s website. UpCounsel’s lawyers have graduated from some of the top law schools in the nation, and will help you during the legal entity registration process. Moreover, they will defend your rights in court if you encounter any legal issues. 90005 .
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