Understanding Business Structures
by Veronica Stone on May 22nd, 2007
General Corporation
A general corporation, also known as a "C" corporation, is the most common corporate structure. A general corporation may have an unlimited number of stockholders. Consequently, it is usually chosen by those companies planning to have more than 30 stockholders or large public stock offerings. Since a corporation is a separate legal entity, a stockholder’s personal liability is usually limited to the amount of investment in the corporation and no more.
Subchapter S Corporation
A Subchapter S Corporation is a general corporation that has elected a special tax status with the IRS after the corporation has been formed. Subchapter S corporations are most appropriate for small business owners and entrepreneurs who prefer to be taxed as if they were still sole proprietors or partners. When a general corporation makes a profit, it pays a federal corporate income tax on the profit. If the company also declares a dividend, the stockholders must report the dividend as personal income and pay more taxes. S Corporations avoid this "double taxation" (once at the corporate level and again at the personal level) because all income or loss is reported only once on the personal tax returns of the stockholders. For many small businesses, the S Corporation offers the best of both worlds, combining the tax advantages of a sole proprietorship or partnership with the limited liability and enduring life of a corporate structure.
Limited Liability Company (LLC)
The LLC is not a corporation, but it offers many of the same advantages. Many small business owners and entrepreneurs prefer LLC’s because they combine the limited liability protection of a corporation with the "pass through"" taxation of a sole proprietorship or partnership. LLC’s have additional advantages over corporations:
- LLC’s allow greater flexibility in management and business organization.
- LLC’s do not have the ownership restrictions of S Corporations, making them ideal business structures for foreign investors.
- LLC’s accomplish these aims without the IRS’ restrictions of an S Corporation.
LLC’s are now available in all 50 states and Washington, D.C. Guidelines for corporations and LLCs are set by each individual state, and vary by state.
With over 100 years of experience, The Company Corporation and its affiliated companies provide expert incorporation services to small businesses and entrepreneurs nationwide. In addition to filing corporations and limited liability companies in all 50 states and the District of Columbia, The Company Corporation offers a wide range of products and services that help businesses preserve and protect their corporate status. For more information on small business incorporation services, visit our Web site at www.corporate.com .
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