Form a Corporation
$199 Set Up includes Select State Filing Fees- Simple, Quick New Corporation Entity Forming
$199 Set Up includes Select State Filing Fees- Simple, Quick New Corporation Entity Forming
Below is a table which lists the major differences between corporations and limited liability corporations.
C Corporation | S Corporation | LLC |
Business income |
Tax on business income is paid on owner’s personal tax return. | Tax on business income is paid on owner’s personal tax return. |
Annual meeting required. |
Annual meeting required. |
Annual meeting not required. |
Issues shares of stock. |
Issues shares of stock. |
No stock. |
Separate Legal Entity Status Broad Range of Powers Small Claims Court Separate Liability for Corporate Debts Note however, that shareholders, directors, and/or officers may be held liable for the debts of the corporation where the court imposes “alter-ego liability” or where the individual has personally guaranteed the corporate debt. Perpetual Duration Duration of Corporation Compared to LLC An LLC has a limited existence. Absent a contrary agreement, a limited liability company (LLC) is dissolved upon the death, withdrawal, or bankruptcy of a member unless the business is continued by unanimous vote of the remaining members. Although the operating agreement can be drafted to avoid such a result, the life of the LLC is still limited to the termination date in the Articles of Organization. The Disadvantages of Incorporating A corporation is required to have a board of directors, corporate officers, annual shareholders meetings, and to maintain separate books and records. Failure to observe such formalities may result in the personal liability of shareholders for corporate debts. However, where the corporation has only one shareholder, many states allow that one shareholder to act as director and all officers (President, Secretary, and Treasurer). |
Regular Corporation Advantages
Shareholders (the owners) enjoy personal limited liability.
It is generally easier to obtain business capital than with other legal structures.
Profits may be divided among owners and the corporation in order to reduce taxes by taking advantage of lower tax rates.
The corporation does not dissolve upon the death of a stockholder (owner) or if ownership changes.
Favorable tax treatment for employee fringe benefits including medical, disability, and life insurance plans.
70% of any dividends received by the corporation from stock investments are deductible (unless you purchased the stock with borrowed money).
Regular Corporation Disadvantages
More expensive and complex to set up than other legal structures.
Completing tax returns usually requires the help of an accountant.
Double taxation on profits paid to owners (corporation pays corporate taxes on profits and owner pays personal taxes on dividends from the corporation).
Recurring annual corporate fees.
Tax rates are higher than individual rates for profits greater than approximately $75,000.
28% accumulated earnings tax on profits in excess of $250,000.
Business losses are not deductible by the corporation.
S-Corporation Advantages
Owners enjoy personal limited liability as in a regular corporation.
No Federal income tax liability, and in most cases, no state income tax.
Profit/losses are passed to owners … no double taxation.
The S-corporation does not dissolve if one of the owners dies or otherwise leaves (like a regular corporation).
Wholly owned subsidiaries are permitted.
S-corporation Disadvantages
Assistance is required to set up.
Maximum of 75 shareholders.
Only one class of common stock is permitted (no preferred stock)
Limited Liability Corporations (LLC)
A Limited Liability Company has the advantage of being a hybrid between a partnership and a Corporation. The advantage of a Limited Liability Company is that most states require fewer formalities be observed in an LLC in comparison to a corporation. This type of corporation blends the tax advantages of a partnership and the limited liability advantages of a corporation. Owners of an LLC are referred to as “members.” As you might expect, it also has some limitations but is definitely worth considering. Separate Legal Entity Like limited partnerships and corporations, the Limited Liability Company shares a similar advantage — it is recognized as a separate legal entity from its “members.” Limited Liability Ordinarily, only the LLC is responsible for the company’s debts thus shielding the members from individual liability. However, there are some exceptions where individual members may be held liable:
LLC Management and Control Management and control of an LLC is vested with its members unless the Limited Liability Company’s articles of organization provide otherwise. Voting Interest Ordinarily, voting interest in an LLC directly corresponds to interest in profits, unless the articles of organization or operating agreement provide otherwise Transferability No one can become a member of an LLC (either by transfer of an existing membership or the issuance of a new one) without the consent of members having a majority in interest (excluding the person acquiring the membership interest) unless the articles of organization provide otherwise. Duration An LLC does not have a reliable continuity of existence. The articles of organization must specify the date on which the Limited Liability Company’s existence will terminate. Unless otherwise provided in the articles of organization or a written operating agreement, an LLC is dissolved at the death, withdrawal, resignation, expulsion, or bankruptcy of a member (unless within 90 days a majority in both the profits and capital interests vote to continue the LLC) Advantage: Formalities. The existence of an LLC begins upon the filing of the Articles of Organization with the Secretary of State. The articles must be on the form prescribed by the Secretary of State. Among the required information on the form is the latest date at which the LLC is to dissolve and a statement as to whether the LLC will be managed by one manager, more than one manager, or the members. To validly complete the formation of the LLC, members must enter into an Operating Agreement. This Operating Agreement may come into existence either before or after the filing of the Articles of Organization and may be either oral or in writing.LLC Meetings While many states do not require that your Limited Liability Company hold meetings on a regularly scheduled basis, it’s always wise to conduct meetings with your members to ensure the LLC is in agreement in all its endeavors. Opening a Bank Account |
LLC Advantages
Limited personal liability for the owners (like a corporation and unlike a partnership).
No Federal taxes (like a partnership).
No limit on the number of stockholders (unlike an S-corporation).
More than one class of stock is permitted (unlike an S-corporation).
Business losses may be deducted on your personal tax return (like a S-corporation).
LLC Disadvantages
Legal assistance is required to set up. The paperwork is complex.
No “continuity of life” as in a regular corporation. The LLC dissolves if one of the owners dies or otherwise leaves. However, other formal agreements between the owners can overcome this.
Some states require than an LLC have more than one member.