A Cheat Sheet on Selecting the Best Structure For Your Business

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Limited Liability Company, C-Corporation, and S-Corporation are the three types of business organizations today. All three have similarities and differences that can significantly affect ownership, operations, and tax rates.

A corporation, whether classified as subtype-C or subtype-S, is a legal business form which consists of individuals acknowledged by law to act as a separate entity. A limited liability company (LLC) meanwhile is different from a corporation. It signifies a sole proprietorship or a partnership with limited responsibilities in many aspects.

We have listed some points that can help any aspirant business owner get an understanding before deciding which company structure to choose.

1. Owners

C-Corp has no restrictions, which means that even its employees can own stocks. What’s more, this unlimited ruling makes the business more attractive to investors knowing that it has the potential to grow into larger proportions. The same applies to LLC. However, LLC is more suited for single owners because of its flexibility. S-Corp, on the other hand, has a 100-shareholder limit. Family owned businesses, for this matter, can benefit from this subtype. All shareholders though need to be US citizens or resident aliens.

2. Ownership Type

Shareholders in S-Corp and C-Corp have ownerships termed “Stocks.” S-Corp can have nonvoting and voting in one class. C-Corp has different levels. LLC members own small percentages of the business and various types of membership interests.

3. Transfer of Ownership

C-Corp shareholders can widely and freely transfer their shares, taking note that they have no restrictions over selecting eligible owners. S-Corp shareholders can only transfer shares to eligible S-Corporation shareholders, given their 100-limit. LLC transfers need further agreement review as variable rulings depend on which state they are established.

4. Declaring Profit and Loss

C-Corp shareholders can distribute loss and profit among themselves benefiting from a lower tax rate. S-Corp shareholders and LLC members, on the other hand, are unable to do this as they have certain quantities allotment for each. On the brighter side, their personal tax returns can account for their profits and losses.

Deciding which one applies best to your company is essential to your success as a business. If you’re a corporation and can’t decide yet if you’ll enlist as subtype-S, remember you have seventy-five days from enlistment to decide.