Definition of Limited Liability Company (LLC):

An LLC is a relatively new form of entity.  An LLC is a hybrid entity which combines the benefits of a corporation and a partnership.

The primary benefit of a corporation is the limited liability protections afforded to stockholders (the owners).  Profits of a C-corporation are subject to double taxation (at the corporate level and then at the stockholder level).

The primary benefit of a partnership is that there is only a single tax on profits (not double taxation like a corporation).  The partners (the owners) of a partnership are subject to potentially unlimited liability for all of the debts and obligations of the business.

LLCs are unique entities in that they provide their owners (called “members”) with the limited liability protections typically afforded to stockholders of a corporation without the double taxation of a corporation.

LLCs, which are subject to the governing state’s laws, are basically “creatures of contract”, meaning the owners (known as “members”) negotiate and enter into a contract (often called an “operating agreement” or “limited liability company agreement”) to determine the functioning of the company.  LLCs are much more flexible than corporations.

Definition of IRS Form SS-4:

This is the form that a corporation, LLC or other type of business entity must complete, sign and file with the Internal Revenue Service to apply for, and obtain, a federal tax ID number (FEIN).

Definition of IRS Form 2553:

This is the form that all stockholders of a corporation must complete, sign and file with the Internal Revenue Service to make an election for the corporation to be treated as an “S corporation.”

Definition of Incorporator:

The party who prepares, signs and directs the filing of the articles of incorporation is the “incorporator.”  After incorporation, the incorporator will typically approve bylaws of the corporation and elect the initial board of directors, at which point the incorporator’s role with the corporation ceases.

Definition of Incorporation:

Incorporation is the creation or formation of a corporation under the laws of a state.

Definition of Holding Company:

A corporation or LLC that owns other companies, and typically does not have operations of its own (beyond owning and controlling the businesses it owns).

Definition of Foreign Qualification:

Also commonly referred to as “foreign registration.”  A corporation or limited liability company (LLC) is considered a “domestic” entity in its state of incorporation or formation.  If the company transacts business in any other state(s), it must qualify or register in such state(s) “to do business,” where it will then be considered a “foreign” corporation or LLC.

Each state has its own tests to determine if foreign qualification is required.  Generally, if a business has substantial or continuous contacts within a state, then qualification or registration is likely required.

These factors could include:

• having employees in the state
• having a real estate lease and office in the state
• having a bank account in the state
• having an automobile registered in the state
• acting as manager of an LLC

Definition of Fiscal Year:

A fiscal year is the 12-month business or accounting year selected by the corporation or LLC.  Most corporations and LLCs have a fiscal year that is the same as the calendar year, but some companies choose a fiscal year that begins and ends at another time of year.  Most S-corporations have a fiscal year that is the same as the calendar year.

Definition of Fictitious Name:

See “Doing Business As“.

Definition of Federal Tax Identification Number (FEIN):

This is a number assigned to a corporation, LLC or other business entity by the Internal Revenue Service for tax purposes (similar to a Social Security Number, but for entities).  See IRS Form SS-4.