LLC

When deciding to start a business in Mississippi, one must consider the pros and cons of each type of entity as well as the impact it will have on personal liability and assets. One of the main reason’s people decide to incorporate or LLC their company is to separate themselves personally from the liability of the company and protect their personal assets.

Just as there are multiple flavors of ice cream there as many different forms business can take on. The most common forms of business entities in Mississippi are:

Sole Proprietor:

Owned by one person
Business does not exist apart from the owner
Must pay self-employment tax
Income and expenses from business included on your personal tax return (single income taxation)
Unlimited liability
You are personally responsible for business liabilities
Hard to raise money for a sole proprietorship businesses
Business earnings are taxed only once
Report income on schedule C of 1040 tax form
For tax information see the IRS website

General Partnership:

Owned and operated by two or more persons carrying on a business
Operates in accordance with a partnership agreement (not required, but recommended)
Must file an annual information return
Business does not pay income tax; individual partners do
Individual partners pay self-employment tax
Profits and losses pass through to the partners
Business profits must be reported on personal income tax returns even if they weren’t distributed
No protection from liability is granted any partner
Full liability for any partner’s actions fall on all partners
Govern by The Mississippi Uniform Partnership Act (“MUPA”) (Miss. Code Ann. §§79-12-1 et seq.)
For tax information see the IRS website

Limited Partnership (LP):

Has two types of partners: a general partner and limited partners.
At least one general partner and at least one limited partner in every LP.
The general partner manages the operation of the LP and are personally responsible for the liabilities of the LP.
General partners are entitled to their share of the profits, which is determined and agreed upon in the partnership agreement.
General partners can be natural persons or legal entities.
Limited partners only contribute to the business with their monetary investment.
Limited partners are shielded from personal liabilities, but they can lose their financial investment in the LP.
Limited partners have no voting power and no control over the operation of the LP; but receive payment for their financial investment, similar to a dividend paid to shareholders of a corporation.
Limited partners may lose their status and be held personally responsible for business liabilities if they are found to be actively involved in the management of the business.
Limited partners don’t have to pay self-employment tax as general partners do.
Governed by the Mississippi Limited Partnership Act (“MLPA”) Miss. Code Ann. §§79-14-101 et seq.
For tax information visit the IRS website

Limited Liability Partnership (LLP):

A form of partnership where all the partners enjoy limited liabilities. All partners are allowed to be involved in the management of the LLP.
The procedures of operation are outlined in detail in the Limited Liability Partnership Agreement.
Distribution of profits is also flexible.
Partners of an LLP are not liable for the negligence or malpractice claims made against other partners.
Unlike a general partnership, an LLP may be subject to state franchise tax.
For tax information visit the IRS website

Limited Liability Company (LLC):

Can be made up of one or more individuals or entities
Shields your personal assets by limiting your liability
Must file an annual report with state (secretary of state)
Requires an operating agreement for more than one member
Company pays no income tax
Income is passed through to company’s members
Member must pay self-employment taxes
No limitation to the number of members
Governed by the Mississippi Limited Liability Company Act (“MLLC Act”) Miss. Code Ann. §§79-29-101 et seq.
For tax information see the IRS website

S-Corporation:

Are more easily financed that sole proprietorships or partnerships
Shields shareholders’ personal assets by limiting their liability
Corporation must file annually with secretary of state’s office
Generally the corporation is exempt from federal income tax
Report the flow-through of income and losses on shareholders’ personal tax returns; assessed at individual income tax rates
Distributes dividends in proportion to shares held
Limited to 100 shareholders
There are lots of legal formalities in the formation process
More complex rules and regulations
Financing is much easier to get
Governed by the Mississippi Business Corporation Act (“MBCA”) Miss. Code Ann. §§79-4-1.01 et seq.
For tax information see the IRS website

C-Corporation:

Can be publicly or closely held
Shields the shareholders’ personal assets by limiting personal liability; corporation is an entity separate from owners
The corporation pays income taxes at the corporate level
Income distributed to owners as dividends is taxed at the corporate level and as taxable income (double taxation)
There are lots of legal formalities in the formation process
More complex rules and regulations
Financing is much easier to get
Governed by the Mississippi Business Corporation Act (“MBCA”) Miss. Code Ann. §§79-4-1.01 et seq.
For tax information see the IRS website

How to form one of these entities can be found at the Mississippi Secretary of State Website.

The Law Office of Stella M. Hurtt, PLLC has helped several entities in deciding and forming their business structures and can help you navigate the mine field of forming and developing your business from the ground up or from a pre-existing business. Contact Stella today for more information.

The information contained within this website is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax planner or financial planner. We encourage you to consult a tax attorney or CPA for tax advice and implications regarding forming a business entity.