Understanding LLC, C Corp, S Corp, & DBA

Nonprofit corporations need to follow organizational rules very similar to a regular C corp. They also need to follow special rules about what they do with any profits they earn. For example, they can’t distribute profits to members or political campaigns. You’ll still have to follow the strict filing and operational processes of a C corp.

It can also impact your financing and your ability to grow the business, the number of shareholders the business has, and the general manner in which the business is operated. Unlike an S Corporation or an LLC, it pays taxes at the corporate level. This means it is subject to the disadvantage of double taxation. As well, a C-corp also must comply with more federal and state requirements than an LLC does. Limited liability partnerships (LLPs) are similar to general partnerships in that the only type of partners are general partners (there must be at least two involved). However, they do provide you with some limited personal liability.

Ownership of an S Corporation

An LLC with multiple owners would be taxed as a partnership, meaning each owner would report profit and losses on their personal tax return. An S corporation provides limited liability protection so that personal assets cannot be taken to satisfy business debts by creditors. S corporations also can help the owner save money on corporate taxes since it allows the owner to report the income that’s passed through the business to the owner to be taxed at the personal income tax rate. If there will be multiple people involved in running the company, an S-Corp would be better than an LLC since there would be oversight via the board of directors. Also, members can be employees, and an S-Corp allows the members to receive cash dividends from company profits, which can be a great employee perk. S corporations can elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.

• As well, a C-corp also must comply with more federal and state requirements than an LLC does.
• Also, if you plan on attracting venture capital or doing an initial public offering (IPO) in the future, a corporate business structure could be a better choice.
• LLCs are often taxed using personal rates, but some LLC owners choose to be taxed as a separate entity with its own federal ID number.
• Because the profits are funding rapid growth, there is never a need to withdraw dividends and be subject to the second layer of tax.
• Plan on checking in with your CPA as well for their advice regarding business entity formation.
• Nonprofit corporations need to follow organizational rules very similar to a regular C corp.

Consider what level of personal liability you’re comfortable with. They’re easier and faster to form and require less ongoing corporate formalities that are required by corporations. With corporations, you’re supposed to hold annual shareholder meetings, elect a board of directors, have regular board meetings, elect corporate officers, and pass resolutions, among other things.

What are the differences between a C-corp and an S corporation (S-corp)?

Although regulation of limited liability partnerships varies at the state level, the structure allows all partners to shield their personal assets. Partners also would not be responsible for the actions of other partners within the business. The conversion to an S-corp occurs by filing IRS Form 2553, Election by a Small Business Corporation, with the IRS, by March 15 of the year that you wish to change your company’s designation to an S-corp. The main differences between C-corps and S-corps have to due with taxes. The profits made through an S-corp are not double-taxed like those made through a C-corp because the S-corp is treated similarly to a partnership or sole proprietorship. However, C-corps have more flexibility around shareholders and the selling of stock, along with the taxes related to certain benefits like health and life insurance.

Let’s analyze what state law and tax entity might be best for you in this two-part process. Nonprofits must file with the IRS to get tax exemption, a different process from registering with their state. If a shareholder leaves the company or sells his or her shares, the S corp can continue doing business relatively undisturbed. Depending on your business, industry, structure, and revenue, different benefits might outweigh some of the disadvantages. In addition, you can deduct expenses and losses from your business against any other income you might earn, which will lower your tax bill overall.

How much of a difference does it make for a business to be taxed with corporate income taxes vs. personal income taxes?

C-corp is a tax classification that is available to both corporations and LLCs, though it is more typically used by corporations. The C-corp is named for the subchapter of the Internal Revenue Code—subchapter “C”—under which its tax designation is described. This type of partnership also provides management flexibility, allowing partners to determine exactly how much they wish to be involved in both operations and management, without affecting their liability. A Limited partnership (LP), on the other hand, does provide some legal protection.

There are other factors and if you’re still on the fence, check out sole proprietorship vs. llc for a deeper dive. What will be what’s called your “state law” entity, and then what will be what’s called your “tax law” entity. There are several third-party B corp certification services, but none are required for a company https://kelleysbookkeeping.com/home-office-tax-deductions-for-small-business/ to be legally considered a B corp in a state where the legal status is available. Shareholders hold the company accountable to produce some sort of public benefit in addition to a financial profit. Some states require B corps to submit annual benefit reports that demonstrate their contribution to the public good.

The main differences between a single-member and multi-member LLC revolve around the fact that multiple business owners are involved. Because of this, you can not elect to be taxed as a sole proprietorship. Your LLC will need to file a business tax form and each partner will need to fill out a Schedule E on their C Corp Vs S Corp, Partnership, Proprietorship, And Llc personal tax return, unless you elect to be taxed as an S corp, which we will discuss below. To form your business as a corporation or LLC, formation documents must be filed with the appropriate state agency. S corporations and partnerships still file a tax return, but no income tax is owed on the return.

Rather, a DBA (“doing business as”) allows a company to transact business using a different name. A DBA is also commonly referred to as an assumed or fictitious business name. A DBA filing generally takes place at the county level, but some states have state-level filing requirements. However, most business owners also want their company structure to provide them with tax advantages. For this reason, the “pass-through” tax advantages of the LLC or the S corporation are viewed as particularly appealing. A significant “downside” to operating as a sole proprietor is that the business owner has unlimited personal liability for business debts.