Starting a business is a lot of work. And choosing your business entity can be even more daunting. Hopefully this article, as well as a business lawyer can help advise you on your options and which entity is right for you.
Corporation vs. LLC
There are many important differences between a c-corporation, s-corporation and LLC. Today, we will be looking at the more broad contrasts between an LLC and corporation. Next, we*ll explore the differences of a c-corporation and an s-corporation. Finally, we*ll compare an s-corporation and an LLC.
First off, there are tax differences. An LLC is a pass-through tax entity, meaning the entity*s income is not taxed but still must complete a tax return. A corporation, however, is a separately taxable entity. This means corporations pay tax on their earnings.
Next, LLC*s have a less strict structure than corporations, offering more flexibility to a unique business or startup. An LLC can be structured in an endless amount of ways while a corporation has more limitation. Lastly, difference is that corporations require directors and officers. An LLC can run less formally and be managed by the members.
S-Corporation vs. C-Corporation
The big difference between an S corporation and a C Corporation have to do with taxes. All corporations start as a *C* corporations. They are required to pay income tax on any income made by the corporation. In order to become an S corporation, the company simply needs to file federal form 2553 with the IRS. Furthermore, an S corporation*s net income or loss is included in their personal tax returns.
S-Corporation vs. LLC
Even though the S corporation has more flexible special tax status, an LLC has more flexibility allocating income to its owners. An LLC may have different classes of membership while an *S* corporation only has one class of stock. Ownership in an S corporation is limited to 100 shareholders while LLC*s have no limit on the number of supporters. S corporations cannot be owned by C corporations, other S corporations, many trusts, LLCs, partnerships, or nonresident aliens. LLC*s can have owners without restriction.
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