S-Corp, C-Corp, or LLC: Crucial Decision For Any Business

For your information, C corporations (C corps) and S corporations (S corps) are two of the most popular forms of business configurations. Each structure has benefits and drawbacks, and S and C corps pay different taxes, but there are also parallels between them.

Five distinct company structures or forms are available for new companies to copy: Sole Proprietorship, Limited Liability Company (LLC), Partnership, S Corporation, and C Corporation.

The Primary Forms of Ownership for Businesses

How a business should be incorporated actually depends on its objectives, size, and nature. When setting up your company, the different forms mainly dictate how they’re taxed.

  • Which is More Preferable?  A C corp, S corp, or LLC is not intrinsically “better” than any other type of company. Instead, these designations merely specify how a business is taxed and the regulations it must follow to remain in compliance with the Internal Revenue Service (IRS).
  • What S or C Corps Bring to the Table: Though that’s not always the case, S corps often tend to be sole proprietorships or smaller enterprises, whereas C corps typically tend to be larger corporations. They’re both obliged to file tax returns for their business’s profits and income.
  • The Gray Areas of the Corps: When determining the best tax status for expanding small and mid-size businesses, there’s a lot of gray area. C and S corps both allow their shareholders and owners to have limited liability protection, shielding their personal assets from litigation and directing debt collection efforts toward the company.
  • What about LLCs? The LLC is a type of business structure that shields the personal assets of a business owner from liabilities or obligations of the company. LLCs can be anything from sole proprietorships to companies employing hundreds of people.
  • Why are Examples of LLCs? For instance, a lot of law firms are LLCs, and independent contractors or freelancers may choose to create an LLC in order to protect their personal assets from lawsuits or debt collection attempts made against the company.
  • Any Business Entity Type Can Become LLCs: Any business type—from proprietorships to partnerships as well as S corp or C corp—can become an LLC to get protections and benefits such as flexible management structure, pass-through taxation, limited liability, and a separate legal identity.

What LLC Essentially Is

If you don’t want your company to have a board of directors and have as many owners–referred to as members–as you want, then you should turn it into an LLC. In fact, the members or owners of this LLC don’t even need to be U.S. residents or citizens.

The IRS mainly recognizes four of the five main business entity types—S corp, C corp, partnership, and proprietorship. The fifth type, LLC, is something that any of the four types can turn into. They can be formed as LLC for the sake of liability assurance then get taxed in accordance to their main type.

Author: admin