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BUSINESS
LEGAL STRUCTURES
There are several legal structures or forms available
for businesses operating in
Guam
and seemingly endless way to set up each. We can help
you choose and set up the structure that will give you
the best protection from creditors, provide tax
advantages, suit your management style,
and keep your investors happy.
The
type of business entity you choose will depend on
three primary factors: liability, taxation and
record-keeping. Here's a quick look at the differences
between the most common forms of business entities:
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A
sole proprietorship
is the most common form of business organization.
It's easy to form and offers complete managerial
control to the owner. However, the owner is also
personally liable for all financial obligations of
the business.
To learn more about the pros and cons or a sole
proprietorship, click
here.
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A
corporation is
a legal entity that is created to conduct
business. The corporation becomes an
entity-separate from those who founded it-that
handles the responsibilities of the organization.
Like a person, the corporation can be taxed and
can be held legally liable for its actions. The
corporation can also make a profit. The key
benefit of corporate status is the avoidance of
personal liability. A shareholder's risk in a
corporation is limited to his investment, and
"the corporate" veil protects
shareholders, officers and directors from personal
liability for business debts and claims. By
contrast, owners of sole proprietorships and
partnerships can be subject to unlimited personal
liability and run the risk of having business
debts attached to personal property (e.g., homes,
cars, savings)
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The primary disadvantage is
the cost to form a corporation and the extensive
record-keeping that's required. While double
taxation is sometimes mentioned as a drawback to
incorporation, the S
corporation (or Subchapter
corporation, a popular variation of the regular C
corporation) avoids this situation by allowing
income or losses to be passed through on
individual tax returns, similar to a partnership.
To learn more about the differences between
a C Corporation and an S Corporation, click
here.
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An
LLC,
or limited liability company,
is a business structure that blends some of the
characteristics of a corporation with those of a
sole proprietorship or partnership. Like
corporations, owners of LLCs are shielded from
personal liability for business debts. For
example, if a business owes money or is ever sued,
only those assets belonging to the business
itself--not the owner's personal assets--are
generally at risk. (An exception to this would be
in the event of illegal or unethical actions on
the part of an owner.)
An
LLC, by default, is considered a
"pass-through" entity for tax purposes,
meaning that its profit or losses are passed
through to the owners and therefore reported on
their personal income tax returns. Owners of an
LLC do have the option, however, of electing to be
treated as a corporation for income tax purposes.
The
limited liability company is a popular business
structure for sole proprietors and partners
seeking personal asset protection and operational
flexibility.
To
learn more about the difference between an LLC and
a S Corporation, click
here.
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A
partnership
involves two or more people who agree to share in
the profits or losses of a business. A primary
advantage is that the partnership does not bear
the tax burden of profits or the benefit of
losses-profits or losses are "passed
through" to partners to report on their
individual income tax returns. A primary
disadvantage is liability-each partner is
personally liable for the financial obligations of
the business.
A limited partnership is a partnership formed
by two or more persons or entities, under the laws of
Guam
, and having one or more general partners and one or
more limited partners. General partners share equally
in debts and assets, while limited partners have
limited debt obligations. A limited partnership must
be registered with the Department of Revenue and Tax.
A registered limited liability partnership is a
general partnership that has been registered with the
Department of Revenue and Taxation.
A partner’s liability in a registered limited
liability partnership differs from that of an ordinary
partnership. In a registered limited liability
partnership, a partner is not individually liable,
under some circumstances, for debts and obligations of
the partnership arising from errors, omissions,
negligence, incompetence, or malfeasance committed in
the course of business by others in the partnership.
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