Legal Question in Business Law in Minnesota

Re: Incorporation Options

Your question is pretty general and to highlight all the differences would take a lot of space. Some of the general differences are listed below:

Legal consequences: An unincorporated joint venture will not protect the JV partners from liability -- they are jointly and severally liable for the acts and omissions of their partners. A "subsidiary" is a separate corporation or LLC owned by another corporation or LLC. If properly set up, run and capitalized, a subsidiary may protect the parent company against most losses incurred by the subsidiary. From a legal standpoint, a corporation and LLC have the same effect: If properly set up, run and capitalized, they may protect their owners against most losses incurred by the entity beyond the owner's capital contributions. An LLC is easier, generally, to set up and maintain than a corporation.

Tax consequences: I'm not an accountant nor do I play one on TV so anything you do should be reviewed by a competent tax accountant. That said, an unicorporated JV will be treated as a partnership by the IRS. A partnership tax return would have to be filed but the JV would not usually, itself, be required to pay income taxes (it might be responsible for other taxes). A subsidiary will generally have to file its own tax return, unless it can be consolidated with the parent. A corporation will almost definitely have to file its own tax return, and it will probably have to pay its own taxes unless it's an "S" corporation. An LLC, if owned by a single person, can be considered a disregarded entity for tax purposes and in that case it might not need to file tax returns or pay taxes. The generally-recognized benefit of an LLC versus a "C" corp is that the profits and losses go directly to the owner's return.

Standard disclaimer: Your questions are very general and the answers can change dramatically depending on the facts of your situation. You should not rely on the above comments to guide your conduct; consultation with competent legal and tax advisors is essential. We do not at this time have an attorney-client relationship.

I hope this gives you a general idea of the differences between the various types of entities. Good luck to you, and let me know if I can be of further assistance.

Vince King