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Limited Liability Company
C-Corporation
S-Corporation
Limited Liability Partnership
Non-Profit Corporation
Limited Partnership
Sole Proprietor
  • LIMITED-LIABILITY COMPANY
    Advantages: Disadvantages:
    • Tax Flexibility - The IRS doesn't actually recognize an LLC as a distinct entity type so the LLC can be taxed as a Sole Proprietorship for a single member or married couple, a Partnership for an LLC with multiple members, or the LLC can opt to be taxed like a corporation.
    • Less Paperwork - LLC's have less required paperwork than C-Corps and S-Corps. The Operating Agreement and state laws govern the LLC.
    • Limited Liability - Like corporations, LLC's provide the owners with protection from personal liability.
    • Ownership Flexibility - Unlike the S-Corp, the owners of the LLC are not subject to limitations regarding citizenship. The LLC can also list other entities as owners including Corporations, other LLC's and Trusts.
    • Avoid "Double Taxation" - Unless the LLC chooses to be taxed as a corporation, the profits flow through to the owners. This means there is no taxation on the entity level and only on the personal income level.
    • Self-Employment Taxes - Unless the LLC elects to be taxed like a coporation, the profits that flow through to the members are often taxed at a higher rate than they would be at a corporate level.
    • Limited Life - In many states the LLC can elect to exist "perpetually" when filing the original articles. In other cases the LLC has an expiration date or ceases to exist when a member departs. This can often be resolved by specifying the handling of these events in the Operating Agreement.
    • Confusing Structure - Managers, Members, Managing Members and so on are not defined as well as the Officers and Directors of a corporation. This can lead to confusion unless it is clarified in the Operating Agreement.
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  • C-CORPORATION
    Advantages: Disadvantages:
    • Limited Liability - The Corporation provides protection from personal liability for directors, officers, shareholders, and employees.
    • Perpetual Existence - No state expiration dates and the Corporation exists beyond the departure of an owner.
    • Expansive Ownership - No limit on the number of shareholders, shareholders can be other entities, and shareholders don't have to be U.S. citizens.
    • Tax Advantages - There are some tax advantages like tax deductible business expenses and sometimes lower corporate tax rates. Check with a CPA.
    • Easy Change of Ownership - Shares can be sold to change owners or change % of ownership.
    • More Paperwork - Corporations do have to document more decisions. This doesn't mean everyone has to have a formal meeting with minutes, though. Many corporations, especially smaller ones, document major decisions (like signing a lease or buying a vehicle) with "written consent resolutions."
    • SEC Reporting - Once the company has $10 million in assets and 500 shareholders, it is required to register with the SEC
    • "Double Taxation" - Profits are taxed on the corporate level and then dividends and income are taxed on the individual level.
    • Rules for PSC's (Personal Service Corporations) - A PSC operates mostly in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting and is owned by its employees or assigns. PSC's can't opt for a fiscal year and generally have a 35% flat income tax.
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  • S-CORPORATION
    Advantages: Disadvantages:
    • Limited Liability - The Corporation provides protection from personal liability for directors, officers, shareholders, and employees.
    • Avoid "Double Taxation" - Profits flow through to the owners. This means there is no taxation on the entity level and only on the personal income level.
    • Perpetual Existence - No state expiration dates and the Corporation exists beyond the departure of an owner.
    • Easy Change of Ownership - Shares can be sold to change owners or change % of ownership as long as it meets IRS restrictions.
    • Complicated Taxes - It's not required, but with regulations and more complicated taxation, it is recommended to hire a CPA when tax season rolls around.
    • Limited Ownership - The S-Corp can have no more than 100 shareholders and they must be U.S. citizens/residents.
    • Highly Regulated - Ownership and financial operations must comply with a larger number of IRS regulations. Although it's pretty rare, not meeting IRS regulations can cause the termination of the S-Corp and this isn't an issue with other entity types.
    • More Paperwork - Like a C-Corp, the S-Corp must adopt Bylaws and record meetings and major decisions. Many corporations, especially smaller ones, document major decisions (like signing a lease or buying a vehicle) with "written consent resolutions."
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  • LIMITED LIABILITY PARTNERSHIP
    Advantages: Disadvantages:
    • Pass-through Taxation - Profits and losses pass through to the owners.
    • Limited Liability - Typically, an LLP partner is only personally liable for his or her own negligence or that of an employee working under the partner's direct supervision. The partner is not personally liable for the negligence of anyone else in the firm.
    • Flexibility - Most operations are determined by the Partnership Agreement which can be customized to meet the needs of the partners. For example a silent partner may be less involved in the business operations.
    • Licensed Professionals - States that specify the LLP entity type only for professionally licensed industries also create statutes related to those industries that may be advantageous.
    • Possible Liability - A partner can be held liable for the negligent acts of employees but the partners are protected from liability from each other's actions.
    • Less Structured - Individual partners can commit the partnership to formal business agreements without the consent of the other partners and much of the structure depends on the Partnership Agreement.
    • Blurred Finances - All partners are responsible for loans, expenses and real estate of the partnership.
    • No Perpetual Existence - The LLP must specify what happens when a parter departs in the Partnership Agreement; there is no inherent perpetual existence.
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    Corporation Now!
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  • NON-PROFIT CORPORATION
    Advantages: Disadvantages:
    • Tax Exemptions - Non-Profit Corps enjoy exemption from corporate income taxes on profits from their exempted nature of business.
    • Raising Capital - Non-Profits are permitted to raise capital from public funds, donations and grants. The tax law encourages these donations by allowing the donors to deduct them on their taxes.
    • Limited liability - The Non-Profit Corp provides protection from personal liability for directors, officers, shareholders, and employees.
    • Licensed Professionals - States that specify the LLP entity type only for professionally licensed industries also create statutes related to those industries that may be advantageous.
    • More Paperwork - Like a C-Corp, the Non-Profit Corp must adopt Bylaws and record meetings and major decisions. The entity is also require to seek 501(c) status in order to file as tax-exempt.
    • Complicated Taxes - There are quite a few regulatory demands starting with applying for 501(c) non-profit status and continuing with all tax filings. A CPA is definitely recommended.
    • Other Restrictions - More restrictions include no pay for directors, no political campaigning, and when the company closes, its assets must be given to another non-profit.
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  • LIMITED PARTNERSHIP
    Advantages: Disadvantages:
    • Pass-through Taxation - Profits and losses pass through to the owners. The limited partner's income is not considered "earned income" fso it is not subject to the self-employment tax.
    • Limited Liability - The limited partner(s) is protected from personal liability in exchange for giving up management power. If the limited partner doesn't take that passive role, they may be seen as a general partner and help responsible for the business's debts.
    • Simple Structure - The general partner operates the day-to-day business while the limited partner is passive. Some states have an allowance for limited partners to vote on major issues affecting the structure of the LP without jeopardizing limited partnership status.
    • General Partner Liability - The general partner(s) is responsible for all daily operations and is personally liable for business debts.
    • Less Structured - Individual partners, both general and limited, can commit the partnership to formal business agreements without the consent of the other partners and much of the structure depends on the Partnership Agreement.
    • No Perpetual Existence - The LP must specify what happens when a parter departs in the Partnership Agreement; there is no inherent perpetual existence.
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    or Corporation Now!
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  • SOLE PROPRIETOR
    Advantages: Disadvantages:
    • Ease of Operation - No red tape like state filings, operating agreements or minutes.
    • Easier Taxes - The business is not separate from the owner so all profits and losses are part of the owner's taxes. This usually reduces the need to hire a tax professional.
    • Clear Structure - One person has all control over decisions, finances, and operations.
    • Provides NO liability protection - The business is not a separate entity from the owner so any debts or lawsuits reach the owner's personal assets.
    • No Perpetual Existence - The business does not continue beyond the death of the owner, it is liquidated and becomes part of the owner's estate which makes it subject to inheritance and estate taxes.
    • Difficulty Raising Capital - limited to the owner's investment and personal credit.
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    or Corporation Now!
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