FORM CORPORATION OR LLC

S Corporations

S corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income. To qualify for S corporation status, the corporation must meet the following requirements:

Be a domestic corporation
Have only allowable shareholders
- including individuals, certain trust, and estates and
- may not include partnerships, corporations or non-resident alien shareholders
Have no more than 100 shareholders
Have one class of stock

C Corporation

A corporation is an entity formed under state civil law that is a separate legal entity owned by shareholders. A corporation is generally taxed under Internal Revenue Code, Subtitle A, Chapter 1, Subchapter C, unless it elects to be taxed under Subchapter S. Corporations taxed under Subchapter C (“C corporations”) are taxed annually on their earnings, and the shareholders are taxed on these earnings when distributed as dividends.

Limited Liability Company (LLC)

A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.

Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner.

A few types of businesses generally cannot be LLCs, such as banks and insurance companies.