Choosing between an S Corp, C Corp, or LLC

© 2015, Wolters Kluwer Corporate Legal Services. All rights reserved.

S Corp

C Corp

LLC

THIS IS NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL

ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. THIS IS NOT A SUBSTITUTE FOR

THE ADVICE OF AN ATTORNEY. CONSULT YOUR ADVISOR.

Choosing Between an LLC, S Corporation (S Corp) or C Corporation (C Corp) is an Important Step There is no “One Size Fits All” type of entity that is best for every unique business owner.

An LLC, S Corporation (S Corp) and C Corporation (C Corp) each have advantages and disadvantages that are important when:

– Persons starting a business are choosing between a Corporation (which could be either an S Corp or C Corp) or an LLC

– Owners of a current Sole Proprietorship or General Partnership decide to incorporate or form an LLC or a Corporation (either S Corp or C Corp)

These advantages and disadvantages affect the company and its owners throughout the company’s entire life cycle.

S Corp

C Corp

LLC

Popular Business Forms

Business Type Breakdown

Popular choices when incorporating or forming a business entity:

n Limited Liability Company (LLC)n C Corporation (C Corp)n S Corporation (S Corp)

Owners who have not yet incorporated or formed a business entity are referred to as:

n Sole Proprietorship n General Partnership

Sole Proprietorship (1 Person)

Sole Proprietorship Advantagesn Easy to start: No state filings required to

start (but may still need Business License or DBA filings)

n Does not require a separate tax return

Sole Proprietorship Disadvantagesn Owner has unlimited personal liability for

business debtsn Obtaining capital can be more difficultn Can have only one owner

Business Type Breakdown

Read more information on sole proprietorships.

Business Type Breakdown

General Partnership (2+ Persons)

General Partnership Advantagesn Easy to start: No state filings required to

start (but may still need Business License or DBA filings)

n Created “automatically” when two or more people or businesses engage in a business enterprise for profit. Can be started with a verbal agreement or handshake

General Partnership Disadvantagesn Owners are subject to unlimited personal

liability for business debtsn Obtaining capital can be more difficultn Individual partners bear responsibility for

actions of other partnersn Poorly organized partnerships and oral

partnerships can lead to disputes among owners

Read more information on general partnerships.

Limited Liability Company (LLC)

LLC Advantages

n Increased credibility for the businessn Limited liabilityn Pass-through taxation (but could elect

otherwise)n Flexibility in management structuren Flexibility in allocating profits

LLC Disadvantages

n Ownership may be harder to transfer n Relatively newer type of entity (established in

1980s and 1990s in many states), not as much case law

Business Type Breakdown

Read more information on LLCs.

GREATER FLEXIBILITY

LLC

S Corporation (S Corp)

S Corporation Advantagesn Increased credibility for the businessn Limited liability n Pass-through taxationn Self-employment tax advantagesn Raise capital more easily

S Corporation Disadvantagesn IRS-imposed restrictions, for example:

– Earnings distributed proportionately to capital contributions

– Only one class of stock (but differences in voting rights among shares of common stock are permissible)

– “100” or fewer shareholders – Shareholders must be individuals (or estates or

certain trusts or certain organizations)– Shareholders cannot be nonresident aliens

n Relatively greater state-imposed filing requirements and ongoing formalities

n Some states require a state-level filing for S Corp status to be recognized. State tax rules may differ

Read more information on S Corporations.

Business Type Breakdown IRS RULES

S Corp

C Corporation (C Corp)

C Corporation Advantages

n Increased credibility for the businessn Limited liabilityn Easy transfer of ownershipn Raise capital more easily

LLC Disadvantages

n May incur double taxation on corporate profits

n Relatively greater state-imposed filing and ongoing formalities

Read more information on C Corporations.

Business Type Breakdown

C Corp

RAISE CAPITAL MORE EASILY

Does My LLC, S Corp or C Corp Need a Registered Agent?

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REGISTERED AGENT

Does My LLC, S Corp or C Corp Need a Registered Agent?

LLCs, S Corps and C Corps All Need a Registered Agent Each must have a Registered Agent throughout the lifetime of the company.

n Registered Agent Definition: A Registered Agent is an agent appointed and maintained by a business entity, such as an LLC or S Corp or C Corp, for the purpose of receiving official notices and service of process on the business entity’s behalf in a particular state. A Registered Agent must have a location in that state where it may be served. This location is the business entity’s Registered Office. The agent’s name and location are “registered” and kept on file with the state business entity filing office.

n Part of Incorporation Process: Incorporating or forming an LLC, S Corp or C Corp involves designating a Registered Agent for the company. The Registered Agent is designated on the Articles of Organization (or Certificate of Organization) or on the Articles of Incorporation (or Certificate of Incorporation or Charter).

n Part of Foreign Qualification Process: Designating a RegisteredAgent is also part of the process when registering to do business in other states (called Foreign Qualification).

n Update State Records for Changes: If the registered agent or registered office changes, it is important to update state records.

Read more information on S Corp, C Corp or LLC Registered Agent services.

REQUIRED!

REGISTERED AGENT

Registered Agent: Official Point of Contact for an LLC, S Corp or C Corp The Registered Agent receives state notices & official documents, service of process (SOP), wage garnishments and other important information.

Note: These documents often have time-sensitive deadlines.

A registered agent should:

n Always be physically present at registered office during normal business hours

n Have expert knowledge in business entity and compliance rules for LLCs, S Corps, C Corps and other types of business entities

n Have trained professionals on staff who know how to expertly manage receipt of various notices, forms and documents

REGISTERED AGENT

physically presenttrained

professionals

expert knowledge

Does My LLC, S Corp or C Corp Need a Registered Agent?

Failing to have a Registered Agent could lead to:n Penalties, judgments against a company

without it even having a chance to defend itself

n Losing the right to bring legal claims

n LLC, S Corp or C Corp revoked (no longer can do business in other states)

n LLC, S Corp or C Corp dissolved (no longer exists)

Does My LLC, S Corp or C Corp Need a Registered Agent?

Professional Registered Agent Services Having a professional Registered Agent helps a company keep its good standing status with the state

A professional Registered Agent typically offers:n Automated Monitoring Toolsn Business Alertsn Monitor and Trackingn & More

A professional Registered Agent may also offer:n Digital Millennium Copyright Act (DCMA agent) servicesn Federal Motor Carrier Act (FMCA) servicesn Private contracts and agreements (process agent services)n United States Trademark Law & More

For information on CT’s professional registered agent services, see: https://ct.wolterskluwer.com/starting-a-business/registered-agent-services-for-new-businesses

Does My LLC, S Corp or C Corp Need a Registered Agent?

REGISTERED AGENT

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January, 2015 © 2015, Wolters Kluwer Corporate Legal Services. All rights reserved.