| Who is this entity perfect for? |
Multiple-owner business that does not mind complying with administrative formalities and where the exposure to personal liability & complex tax planning is a primary concern. |
Sole or multiple- owner business where owner(s) need(s) limited liability but want to be taxed as an individual. Many who consider an LLC also consider a Corporation where they elect S-Corporation status (the LLC and “S-Corp” entities have similarities). |
Single-owner business that wants limited compliance responsibilities where taxes or liability (risk of being sued) are not a primary concern. |
| Number of Owners |
1-100 (for S); More than 1 (for C) |
One or more |
One |
| Types of Owners |
S-Corporations are limited to U.S. residents (people who file taxes as U.S. residents) and citizens and to certain trusts/estates; Any (for C-Corporations) |
Any |
Any |
| What are the advantages? |
Limited liability; Capital is easy to raise through sale of stock; Tax savings through income splitting (C only) |
Limited liability; Capital is easy to raise through sale of interests; Pass-through taxation to personal income tax return; Unlimited number of owners & no restrictions on owner identity. |
Inexpensive to form; Few administrative duties. |
| What are the disadvantages? |
More administrative duties; S Corp must have fewer than 100 shareholders and owners must be resident aliens or citizens. |
Can be costly to form due to publication requirement. |
No tax benefits; Unlimited liability (including personal liability); Business dissolves upon death of owner. |
| Cost of Formation |
Moderate |
Expensive due to publication requirement. |
Low |
| How easy is it to set up? |
Most difficult as you must appoint a board, develop bylaws and articles of incorporation, and follow other formalities. |
Not difficult but you must create an operating agreement and meet the publishing requirements in your state. |
Easy |
| What happens if someone wants to sue the business? Am I protected? |
Corporation is a separate legal entity & if someone sues and wins, they cannot come after your personal assets. This is called “limited liability protection.” |
Same as Corporation. |
You and the business entity are the same person. If your business is sued and the business does not have enough money, they can come after you personally. |
| Will I be subject to tax on the income the business makes and my personal income? Said another way, will I be subject to “double taxation”? |
Yes, unless you elect for S-Corp status. The election is free but if you elect this you must be a resident for tax purposes and you will have other ownership restrictions. |
No. The income from the business is automatically passed through to your personal income tax return so you are not subject to double tax. |
No |
| Can I make an S-election? |
Yes |
Yes |
No |
| Do I have to pay income taxes? |
Yes |
Yes |
Yes |
| Do I have to pay self-employment taxes? |
Yes – but if you make an S-election, you will only pay self-employment taxes on the amount you designate as your salary. (This salary must be reasonable to qualify). |
Yes – but you can make an S-election so that you only pay self-employment tax on the amount you designate as your salary. |
Yes |
| If I am a licensed professional (for example, a lawyer, doctor, accountant, etc.), do I have to set up as a “Special Entity”? |
Yes. You must set up a professional corporation and the requirements will be outlined by your state. Also, you must buy malpractice insurance. |
Yes. You must set up a professional LLC and the requirements will be set up by your state. Also, you must buy malpractice insurance. |
No |
