C Corporation Vs. S Corporation Vs. LLC

By Rob Jennings J.D.

In today's litigious society, obtaining limited liability when starting a business has become more important than ever for the upstart entrepreneur. While the limited liability company business structure is popular, many owners choose to organize as a Subchapter C corporation or a Subchapter S corporation. Making a decision as to how to organize requires an understanding of the basic characteristics of each corporate form.

In today's litigious society, obtaining limited liability when starting a business has become more important than ever for the upstart entrepreneur. While the limited liability company business structure is popular, many owners choose to organize as a Subchapter C corporation or a Subchapter S corporation. Making a decision as to how to organize requires an understanding of the basic characteristics of each corporate form.

LLC

A limited liability company has members, not shareholders, who appoint managers to run the company and may elect to report the company's earnings on their own personal tax returns -- this is referred to as "pass-through" tax treatment. Although state law may place restrictions on the degree to which members can be involved in the day-to-day operations of the company, the absence of a requirement for a board of directors generally gives members a greater level of control over company operations compared to corporate shareholders and reduces the complexity of conducting those operations.

Ready to start your LLC? Start an LLC Online Now

S Corporation

The distinction between S corporations and C corporations refers to the set of IRS rules under which a corporation chooses to be taxed. While an S corporation offers the same limited liability to shareholders as a C corporation or an LLC, a S corporation may not have more than 100 shareholders. This limits the corporation's ability to raise capital through the issuance of stock. Unlike an LLC, an S corporation must have a board of directors, stock certficates and stock ledgers. Unlike a C corporation, the shareholders of an S corporation can elect to receive pass-through taxation of corporate profits and losses.

C Corporation

A C corporation resembles an S corporation in many ways. Both require articles of incorporation, bylaws, board resolutions, stock certificates and stock ledgers. Additionally, both require the appointment of a board of directors to manage the company and both can issue and sell stock to raise capital. Unlike an S corporation, however, there exist no restrictions on the number of shareholders. In addition, C corporation shareholders do not have the option to pass corporate profits and losses on to their own personal tax returns.

Sole Proprietorship

Some entrepreneurs will face the decision of whether to seek limited liability at all. LLCs, S corporations and C corporations are all united in their inability to protect a member, shareholder, officer or employee from liability for his own acts in the course of business. As such, a sole proprietor who intends to operate the business on his own without employees will realize no limited liability advantage from organizing as one of these entities. As each state has documentation requirements and filing fees for limited liability companies and corporations, the financial cost and time requirements of these corporate forms may not be justified by the advantages they offer the entrepreneur.

Ready to start your LLC? Start an LLC Online Now
LLC Vs. C Corporation

References

Related articles

The Steps in Starting an S-Corp

An S corporation is simply an ordinary corporation that has elected to be taxed under Subchapter S of the Internal Revenue Code. To start an S corporation, you must form a corporation that qualifies under IRS rules and then apply for S corporation status with the IRS. The IRS routinely approves applications from qualified entities. Limited liability companies may also elect to be taxed as S corporations if they qualify.

C Corp, S Corp or LLC

Limited liability companies, or LLCs, are creatures of state law that offer the benefits of limited liability and flexible tax treatment without the onerous paperwork requirements associated with corporations. Subchapter S corporations and C corporations, on the other hand, are corporations that have elected to receive tax treatment under either Subchapter S or C of the Internal Revenue Code. Deciding how to proceed requires an understanding of the pros and cons of each option.

Is a Corporation the Same as an LLC?

At one time, there were only three options for company organizers choosing a form of business organization: the sole proprietorship, the partnership and the corporation. Then in the 1970s, the limited liability company (LLC) was introduced in some states. As of 2010, LLCs are authorized by all 50 states and the District of Columbia. It is similar to the corporation in some ways and different in others.

LLCs, Corporations, Patents, Attorney Help

Related articles

Comparison of an LLC vs. an S Corporation

When comparing legal structures for a company, many business owners end up comparing a limited liability company -- LLC ...

Advantages & Disadvantages of a C-Corp or S-Corp

The U.S. Tax Code and IRS recognize two different types of corporations: the C corporation and the S corporation. The ...

The Pros & Cons of an LLC Vs. an S Corp in Virginia

Starting your own business requires making a number of important decisions, one of which is deciding what type of legal ...

LLC Vs. S Corporation

Limited liability companies (LLCs) and S corporations are distinct business entities. State laws typically govern the ...

Browse by category