This is a
brief summary of a few of the differences between these two very popular
forms of business.
Corporations:
All Corporations begin as "C Corporations", that is, an entity responsible for paying income tax as a separate taxable entity. A Corporation is an ideal vehicle for building-trade contractors, some service businesses, eating establishments, internet supported businesses and other active business concerns. Keep in mind, there are special laws regulating the formation of Bank corporations, law corporations and other professional service firms. While a corporation offers excellent tax advantages, it must be managed carefully as it has a potential for double taxation, plus there are limits regarding earnings and profits which may be retained by the corporation. Your tax specialist may advise electing "S Corporation" status. An "S Corporation" is a pass through entity and is not responsible to pay taxes. Instead, the taxes are passed along to the shareholders on a schedule K-1, much like a partnership. "S Corporations" have some advantages, especially in the startup years when the company is operating at a loss.
Limited Liability Companies:
An LLC is a pass through entity, much like as "S Corporation". It is ideal for holding real estate property and other investment property. Ownership of the entity is determined by Membership rather than Shareholders. The members pay taxes based on the earnings and profits reported on a schedule K-1. This is an excellent vehicle for more passive forms of business.
Either form of business, a Corporation or a Limited Liability Company, can offer indemnification of the officers, directors, shareholders, members or managers under the law. A consultation with a tax and asset planning specialist can make all the difference in using your Corporation or Limited Liability Company to its greatest advantage and is highly recommended.
Fountainhead Associates, Inc. works closely with tax specialists and legal professionals and would be happy to refer someone to you, if you wish.
