CORPORATIONS
The corporation's principal characteristic is that it is an independent legal entity. A modern view of a corporation is to realize that it is comprised of and owned by associates and that the law authorizing incorporation permits these associates to take advantage of the privileges and characteristics which are distinct to corporations. As the corporation incurs debts and liabilities, it is the corporation that is responsible for these claims, not the stockholders. Attention to proper corporate drafting, keeping minute books, signing contracts and checks properly, and other formalities will prevent numerous problems. A separate advantage of incorporation is the availability of tax-privileged fringe benefits which may accrue to corporate employees. For example, benefits such as group life insurance, and medical and pension plans may under certain circumstances be deductible corporate expenses and not taxable to the corporate employee. There are several types of corporations. A professional corporation may be organized by one or more individuals licensed to perform the same professional service in Maryland. By operating as a close corporation, a corporation is able to dispense with some of the normal corporate formalities required in regular corporations.
Limited Liability Company (LLC): A Limited Liability Company is an unincorporated business association consisting of two or more "members" that do not have personal liability for the debts of the LLC. All members of an LLC have limited liability. LLC is treated like a corporation for limited liability purposes, but for federal tax purposes is treated like a partnership. To achieve legal existence, an LLC must file Articles of Organization with the Department of Assessment and Taxation. Members may enter into an Operating Agreement which sets forth details regarding the operation of the LLC and the relationship of the members to one another. However, members are permitted to operate an LLC without a formal Operating Agreement. The LLC is often compared to the S Corporation because it provides limited liability without double taxation. The LLC has advantages over the S Corporation, however, because the restrictions placed on S Corporations are absent in the LLC.
"C" Corporations & "S" Corporations:There is no distinct difference between C corporations and S corporations for purposes of Maryland corporate law. The reason people choose to operate S corporation as opposed to a C corporation is primarily based on the desire to avoid the double taxation which is imposed on C corporations. A C corporation is treated as a separate taxable entity and distributions to stockholders are generally treated as dividends. This results in the double taxation of profits, because a corporation is taxed on its net income and then, upon payment of a dividend, the stockholder is taxed on the dividend. S corporations will generally not be subject to double taxation because the profits and losses of the corporation will flow directly to the stockholders in a manner similar to which profits and losses are passed through a partnership to its partners. An S corporation, therefore, provides the liability protection of a corporation while allowing tax treatment similar to a partnership. There are, however, restrictions as to who may form an S corporation.
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