Entities
Below is a list of and basic characteristics of the common types of Entities:
C Corporations
This is the Standard Corporation.
- Independent Legal & Tax Entity separate from owners
- No limit to the number of Shareholders
- Taxed on Corporate Profits and Shareholder Dividends at a Corporate Tax Rate – may lead to “Double Taxation”
- Must hold Annual Meetings and Record Meeting Minutes
- Affords Limited Liability for directors, officers, shareholders and employees
- Can issue more than one type of Stock
- Shareholders do not need to be US Citizens or Residents
- Affords Perpetual Existence
S Corporations
This is the Standard Corporation, which has elected a special status by filing with the IRS.
- Independent Legal & Tax Entity separate from owners
- Pass Through Entity, so Shareholders report their share of Profit or Loss on their Individual Returns.
- Limited number of Shareholders that must be either US Citizens or Permanent Residents
- Must hold Annual Meetings and Record Meeting Minutes
- Can have only one class of stock.
- Affords Limited Liability for directors, officers, shareholders and employees
- Affords Perpetual Existence
Limited Liability Companies (LLCs)
This type Entity Formation is popular as it combines the tax flexibility of a partnership (more than one owner required) with the personal liability protection of a corporation.
- Independent Legal & Tax Entity separate from owners
- Taxed as Partnerships (if more than one owner) or Sole Proprietorship (if one owner)
- Pass Through Entity, so Shareholders report their share of Profit or Loss on their Individual Returns.
- No limit to the number of Shareholders
- Not required to hold Annual Meetings and Record Meeting Minutes
- Governed by Operating Agreements.
Partnerships
- General Partners remain personally liable for lawsuits filed against the business.
- One or more partners “manage” the business, while limited partners contribute capital.
- May not require official registration. May be required to file informational returns.
- Pass Through Entity, so Partners report their share of Profit or Loss on their Individual Returns.
Sole Proprietorship
- Owner remains personally liable for lawsuits filed against business
- No state filing required to form a Sole Proprietorship
- Easy to form and operate
- Owner reports business profit and loss on their personal tax return.
- Depending on the type of business may not afford the best tax advantages – please contact us to discuss.
Nonprofit Corporation
A nonprofit corporation is formed for purposes other than making a profit e.g. religious, educational etc. The nonprofit status is not automatic; a form with supporting information must be filed with the IRS.
- Directors are not usually responsible for the debts and liabilities of the nonprofit corporation
- A Nonprofit corporation can apply for both federal & state tax-exempt status.
- May be eligible for public & private grants
- 501(c) (3) Corporations can received tax – deductible donations from individuals.
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