LLC, C Corp or S Corp

In the post - “Types of US Business entities”, we covered the major forms of business types that are available to organizations in the United States.

Generally speaking, most organizations opt for one of three types of entity: LLC, C-Corp or S-Corp. Let’s look at each of these in more detail.

Limited Liability Corporation - LLC

An LLC can be a single owner entity or a partnership between two or more people. An LLC is known as a pass-through entity, that is, the finances of the business are passed through to the owner (in the case of a sole proprietorship) or to the partners, based on their share of the company. This means that any losses can be deducted against personal taxes and any profits are subject to taxation at the personal rate.

In either instance the LLC protects the owners from debt of the business.

Corporation - S-Corp or C-Corp

A Corporation, either S or C, has a greater level of reporting requirements. The organization must form a board of directors, hold annual meetings and produce an annual report.

The difference between an S-Corp and a C-Corp lies in the manner in which taxation is handled. An S-Corp is considered, like an LLC, to be a pass-through entity. This means that the business is not subject to taxes, but rather the owners report profits and losses on their personal taxes.

A C-Corp is not considered a pass-through entity and is subject to business taxation. However, any dividends paid are subject to taxation at the individual level.

At first glance there seems little difference between an LLC and an S-Corp, however for an overseas organization, a notable difference is that both S-Corp and C-Corp are recognized entities outside of the US, they are preferred by investors and are required for an IPO.

*The materials on this web site is for informational purposes only and are not legal advice or a substitute for legal counsel.