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S Corporation |
C Corporation |
LLCs |
DBA
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Recommended For
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Owners wanting the liability protection of a corporation, with the simplicity of pass-through taxation of income |
Owners needing maximum tax and ownership flexibility, combined with liability protection |
Owners wanting the simplicity of pass-through income taxation and the liability protection of a corporation with fewer formalities. Great for passive income and real estate investments. |
Owners wanting to legally do business as a particular name without having to create an entirely new or amend an existing business entity |
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Ownership
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- Shareholders
- (restrictions against corporate shareholders, nonresident aliens, and > 100 shareholders)
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Personal Liability
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- Shareholders typically not liable for corporate debts
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- Shareholders typically not liable for corporate debts
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- Members typically not liable for debts of LLC
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- Owners are personally liable for all debts of the business
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Formalities & Record Keeping
Requirements
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- Formal board and shareholder meetings and minutes
- Annual state reports
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- Formal board and shareholder meetings and minutes
- Annual state reports
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- Must renew your application and publish (if required) every 4-5 years depending on state
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Taxation
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- No tax at entity level
- Income/loss passed through to shareholders
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- Taxed at entity level
- If dividends distributed to shareholders, dividend income taxed at individual level
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- By default, no tax at the entity level if properly structured
- Income/loss is passed through to members (as in a partnership or sole proprietorship)
- May opt to be taxed as C or S corporation.
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- No tax at entity level
- Income/loss passed through to shareholders
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Tax Reporting
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- Income on Form 1120S
- Salaries on Form W-2
- Profit distribution on Schedule K-1
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- Income on Form 1120
- Salaries on Form W-2
- Profit distribution on Form 1099-DIV
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- Income on Form 1040, Schedule C OR Form 1065 & Schedule K-1 for profit distributions
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- Schedule C
- If Partnership Schedule K-1
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Management & Operation
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- Managed by directors, elected by shareholders
- Day-to-day operations run by officers appointed by directors
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- Managed by directors, elected by shareholders
- Day-to-day operations run by officers appointed by directors
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- Flexibility similar to a partnership
- An operating agreement typically outlines management duties
- Optional board of managers
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Formation
Requirements
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- State filing
- Subchapter S election with IRS typically required within 60 days of formation. To select, simply check one-question option on LegalZoom's questionnaire
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- State or county DBA filing required generally before using your DBA, and in some cases within 30-40 days of your first business transaction
- Some states require a published notice in local newspaper along with proof of fulfillment
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