| C-CORPORATION
vs S-CORPORATION vs LLC
DIFFERENCE BETWEEN S-CORPORATION & LLC
While
the S corporation's special tax status eliminates double taxation,
it lacks the flexibility of an LLC in allocating income to the
owners. An LLC may offer several classes of membership interests
while an ‘S’ corporation may only have one class
of stock.
Any
number of individuals or entities may own interests in an LLC.
However, ownership interest in an ‘S’ corporation
is limited to no more than 100 shareholders. Also, ‘S’
corporations cannot be owned by ‘C’ corporations,
other S corporations, many trusts, LLCs, partnerships, or nonresident
aliens. Also, LLCs are allowed to have subsidiaries without restriction.
DIFFERENCE BETWEEN CORPORATION & LLC
There are many important differences between the corporation and LLC. The entities are taxed differently. An LLC is a pass-through tax entity. This means that the income to the entity is not taxed at the entity level; however, the entity does complete a tax return. The income or loss as shown on this return is "passed through" the business entity to the individual shareholders or interest holders, and is reported on their individual tax returns.
With a standard corporation, the corporation is a separately taxable entity. Corporations are treated as a separate legal taxable entity for income tax purposes. Therefore, corporations pay tax on their earnings. If corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders.
LLC's are less rigid in their structure than corporations, so you have more flexibility in adapting the LLC to your unique business. The Operating Agreement of a LLC can be structured in a limitless amount of ways.
Formality : A corporation is a formal entity with officers and directors (at least one of each) required. A LLC, on the other hand, can be "member managed" and run in a less formal way. For small, start-up businesses, less formality means you can focus on making money rather than administrative work.
DIFFERENCE BETWEEN S-CORPORATION & C-CORPORATION
All corporations start as "C" corporations and are required to pay income tax on taxable income generated by the corporation. A C corporation becomes a S corporation by completing and filing federal form 2553 with the IRS. An S corporation's net income or loss is "passed-through" to the shareholders and are included in their personal tax returns. Because income is NOT taxed at the corporate level, there is no double taxation as with C corporations. Subchapter S corporations, as they are also called, are restricted to having no more than 100 shareholders. SIDE-BY-SIDE
COMPARISON
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