A corporation and a limited liability company (LLC) are two distinct types of business entities, each with its own characteristics:

Ownership Structure

• Corporation: Owned by shareholders who hold stock in the company.
• LLC: Owned by members who hold membership interests.

Liability Protection

• Corporation: Shareholders have limited personal liability for business debts and obligations.
• LLC: Members also enjoy limited personal liability protection.

Taxation

• Corporation: Typically taxed as a separate entity. Profits are taxed at the corporate level and again at the individual level when distributed as dividends (double taxation).
• LLC: Offers flexibility in taxation. Can be taxed as a sole proprietorship, partnership, or corporation, depending on the structure chosen.

Management and Formalities

• Corporation: Requires a more rigid structure with formalities such as annual meetings, board of directors, and detailed record-keeping.
• LLC: Generally, it has fewer formal requirements and offers more flexibility in management.

Both entities provide significant benefits, including liability protection and credibility. The choice between them depends on your specific business needs and goals.

An S corporation (S corp) is a type of business structure that allows small businesses to pass income, deductions, and credits directly to shareholders, avoiding federal corporate tax while offering liability protection. Here are some key points:

• Pass-Through Taxation: S corps don’t pay federal corporate taxes. Instead, income, losses, deductions, and credits pass through to shareholders, who report them on their personal tax returns. The income pass-through is not subject to social security and Medicare taxes.
• Limited Liability: Shareholders have limited liability protection, meaning their personal assets are generally protected from business debts and liabilities.
• Eligibility Requirements: To qualify, an S corp must be a domestic corporation with no more than 100 shareholders or members, all of whom must be individuals, certain trusts, or estates. It can only have one class of stock. An LLC is also eligible to become an S corp.
• Filing Requirements: To become an S corp, a corporation or LLC must file Form 2553 with the IRS, signed by all shareholders or members respectively. If the shareholders or members live in a community property state, their spouses must also consent.

This structure is often chosen by small businesses looking for the benefits of incorporation without the double taxation that typically applies to C corporations. Please consult your tax advisor for additional information.

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