Types of Business Entities: Comparisons of C-Corporations, S-Corporation and LLCs
One of the most common questions asked of our experts at MyLLC.com is what type of business entity they should form to best protect their business. While we HIGHLY recommend you speak to your tax professional regarding making any changes to the status of your company, for informational purposes only, we can however offer you insight into the various options available to you.
C-Corporations:
A C-Corporation is a standard, general for profit, state formed corporation. C corporations assume separate legal and tax life distinct from its shareholders. A corporation pays taxes at its own corporate income tax rates and files its own corporate tax returns each year. The biggest issue is that C corporations pay taxes, and then the members are taxed again on the distributions made by the corporation. This double-taxation is viewed as a major con by some business owners, but when you consider that you can then reinvest those earnings back into the business at the lower tax rate it makes C corporations actually one of the most popular entities. In fact, most corporations are C corps. Check with your tax professional to see if its the right choice for your business.
S-Corporations:
S corporations are radically different from C corporations. According to the IRS,"S corporations elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates." So basically, the S corp passes the tax burden on to the shareholders of the company. There are very specific requirements in order to form an S corp, so contact your financial adviser prior to making any decisions. Of all the forms of business entities, S corps are the least common largely due to the tax hit that shareholders take. The process for filing is also quite extensive and subject to high IRS scrutiny.
LLC / Limited Liability Company:
LLC companies are perhaps the easiest entity to form for numerous reasons:
Taxation: LLCs allow for pass-through taxation.
Liability Protection: In most liability claims associated with management of the company the individual proprietor and his/her personal assets are protected.
Ease of Maintenance: The annual compliance paperwork is less complicated and in most cases less expensive than a corporation.
Whichever type of corporation you decide to form, MyLLC.com professionals are standing by to assist you!
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