S Corporation vs C Corporation vs LLC

See a quick comparison chart making it easier to understand the differences between an S Corp vs C Corp vs LLC.  Understand the different tax treatments of each, what is required to qualify for an S Corporation, how to treat partners, the advantages and disadvantages of each and what else you will need to start each entity.

 S CorpC CorpLLC
QualificationsNo more than 100 shareholders
Owners must be US citizens or green card holders or have filed personal US tax returns for the last 2 years
No more than 25% passive income (income from rents/investments)
Can only have one class of stock (can still have voting and non voting stock)
No restrictions – can be owned by individuals, corporations or foreignersNo restrictions – can be owned by individuals, corporations or foreigners
LiabilityLimited to amount investedLimited to amount investedLimited to amount invested
Federal Tax TreatmentPass through entity
Taxed once on shareholders
No corporate level taxation
Still file corp tax return
Double taxation
Corp pays taxes
Shareholders pay taxes on dividends
Pass through entity
Members pay taxes
No LLC tax return
Self Employment TaxMinimized by paying reasonable salary and taking dividendsNone (but double tax, see above)Assessed on 100% of the profits if a single member LLC
Share of Profits & LossesShareholders receive percentage of profits & losses based on percentage of shares ownedShareholders receive percentage of profits & losses based on percentage of shares ownedShare of profits & losses can be initially set by operating agreement and later by other agreement
RecordkeepingBoard annual minutes
Shareholder annual minutes
Annual report (fee typically $100)
Board annual minutes
Shareholder annual minutes
Annual report (fee typically $100)
Board and Shareholder annual minutes not required but recommended
Annual report (fee typically $250)
AdvantagesIf you qualify then this is recommended
Cheaper to set up than LLC
Cheaper annual report fee
Better tax treatment than C Corp
More established law (less uncertainties than LLC)
Easier to go public
Cheaper to set up than LLC
Cheaper annual report fee
Better tax treatment than C Corp
More established law (less uncertainties than LLC)
Flexibility of profit distributions
Harder for personal creditors to get ownership interests
Good for foreign citizen
No limit on passive income
Taxed as partnership if 2+ owners (not married)
DisadvantagesLimit on passive income
Must do annual minutes
Must file corp tax return
Must qualify
Less flexible
Higher taxes
Must do annual minutes
Higher filing fee
Higher annual report fee
Higher late penalties
No tax benefits for single owners
Possible less liability benefits for single owners
Less established laws (more uncertainty)
RecommendedIf you qualify then this is typically the best bet
Best tax and liability protection
A little more paperwork but the tax saving are usually worth it
If you plan to go public
Try to avoid the double taxation if you can
If holding real estate or long term investments
If varying income distributions from year to year
More flexibility but most clients don’t take advantage of this
Items Needed or RecommendedIndemnification Agreement
Shareholder Agreement
EIN
Business Registration
New Hire Reporting Forms
Unemployment Report
County Recording
Corporate Counsel
Indemnification Agreement
Shareholder Agreement
EIN
County Recording
Corporate Counsel
Indemnification Agreement
Operating Agreement
EIN
County Recording
Corporate Counsel

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