In the US, two different forms of corporate structures are frequently used: limited liability companies (LLCs) and low-profit limited liability companies (L3Cs). While there are many similarities between the two, their goals and legal frameworks are different. Entrepreneurs can choose the best business structure by being aware of the variations between an LLC and an L3C.
The common corporate form known as an LLC protects its owners or members from limited liability. This indicates that the owners are not personally responsible for the debts or legal responsibilities of the company. LLCs offer flexibility in terms of ownership structure, taxation, and management. They may be controlled by other LLCs, corporations, or private persons. Since LLCs are taxed as pass-through organizations, the company’s revenues and losses are distributed to the owners and reported on their individual tax returns. In Vermont, creating an LLC might cost anywhere between $125 and $250.
Contrarily, L3C is a relatively new corporate form that was developed to fill the void between conventional for-profit businesses and non-profit organizations. L3Cs are made to function primarily for social good and secondarily for financial gain. In other words, L3Cs are organizations with a clear mission that work to make a small profit while pursuing particular social or environmental objectives. L3Cs are required to be set up and operate primarily for charitable, educational, or scientific objectives. L3Cs are taxed similarly to LLCs as pass-through entities, and its owners are also immune from civil liability.
Only a few states, including Vermont, Illinois, Louisiana, Maine, Michigan, North Carolina, Rhode Island, and Wyoming, currently recognize L3Cs. An L3C can be formed in Vermont for the same amount, between $125 and $250, as an LLC. To keep their tax-exempt status, L3Cs must submit a Form 990 to the IRS, much like non-profit organizations.
Entrepreneurs in Vermont must do a number of actions in order to launch a firm. Selecting a legal business form, such as an LLC or L3C, is the first step. The next step is for them to register their company with the Secretary of State’s Office in Vermont and secure any necessary licenses or permits. In order to receive a tax ID number and pay the necessary taxes, they must also register with the Vermont Department of Taxes.
In conclusion, the LLC and L3C are two corporate forms that provide particular advantages to business owners. Limited liability companies (LLCs) offer limited liability protection and management flexibility, whereas limited liability third party corporations (L3Cs) are purpose-driven organizations that work primarily to achieve specified social or environmental goals while making a minor profit. To choose the best structure for their organization, entrepreneurs must carefully consider their aims and objectives.