What is the difference between a U.S. C Corporation, an LLC, and an LLP? For which client groups are they applicable?

A C Corporation is the standard type of joint stock company and is a separate and distinct business entity that can open bank accounts, own property, and operate a business with all of its ownership rights in the company’s name. The advantage is that the shareholders of a C corporation are not personally liable for the debts and obligations of the corporation. If the company is sued and declared bankrupt, the owners are not required to use their personal property to pay the company’s debts, and creditors have no right to seek compensation from the company’s shareholders, directors or officers. Also, C corporations are simple to file and more suitable for all out-of-staters who are not U.S. tax residents.

Like a C corporation, an LLC has limited liability for its owners. However, the form of ownership of LLC members is different from that of shareholders of a corporation, as they do not hold stock, but hold a legal interest (interest) in proportion to their investment. LLCs are generally not allowed to go public, and if they need to go public, they need to convert the LLC to a C-Corporation. The shareholders can then file their personal income tax returns, and their income is not subject to double taxation. A Corporation is double taxed, both at the corporate level and at the individual level when paid to the owners. However, since 99% of our clients are Chinese tax residents, there is no difference between LLCs and C corporations in this respect.

An LLP is one of the types of partnership. There are four types of partnerships in the U.S.: General Partnership (GP), Limited Partnership (LP), Limited Liability Partnership (LLP) and Limited Liability Limited Partnership (LLLP); LLP operates under a partnership relationship and is relatively more suitable for professionals such as doctors, lawyers, accountants, and architectural designers. Unlike an LLP, an LLC is generally considered a distinct legal entity that has the right to enter into contracts, hold property, sue and be sued independently. An LLP, on the other hand, signs contracts, holds property, or sues and is sued in the name of the individual partner.