Choosing Between an S Corp, C Corp, and LLC

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Transcript of Choosing Between an S Corp, C Corp, and LLC

  • 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 companys 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?

    ?

    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 entitys 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 entitys Registered Office. The agents 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.

    REQU

    IRED!

    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 CTs 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 SERVICES

    CT

  • Thank YouQuestions?

    Contact CTs Expert Registered Agent Professionals

    CT provides LLC, S Corp and C Corp formation & incorporation services for businesses of all sizes nationwide

    #1 Registered Agent for over 120 years

    REGISTERED AGENT

    SERVICES

    CT

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