WHAT ARE THE CHOICES OF CORPORATE STRUCTURE?

1. CORPORATIONS

There are two major types of corporate structure available to the United States corporations: Subchapter C and Subchapter S. They differ along the following lines:

• "C" Corporation is the default status for a corporation. All corporations listed on stock exchanges are "C" corporations.
  

• "C" corporations pay income taxes.
  

• "C" corporations are subject to double taxation.
  

• "S" corporations are domestic (US) corporations with one class of stock.
  

• "S" corporations must have less than 100 individual shareholders, none of whom are non-resident aliens.

• "S" corporations are generally not subject to double taxation.
  

• "S" corporations shareholders pick up their pro-rata share of corporate income of loss annually on their individual income tax returns. 

• "S" corporation shareholders report their share of the company's income, regardless of whether they actually received any compensation.
  

• "C" corporation shareholders only pay tax on dividends or, if they are also employees, on salaries received.
  

2. LLC

Though the tax status of an S Corp is similar to that of an LLC, the LLC can offer small business owners advantages over the Subchapter S Corporation:

• An LLC is typically easier to form. The state requirements for forming a corporation, and then electing to have it be taxed as an S corporation, are more complex and time-consuming than the simple filing of a Certificate of Formation.
  

• LLC's are not required to hold annual meetings or keep formal meeting minutes. Corporations, including Subchapter S Corporations, have a formal annual meeting and record-keeping requirement that LLC's do not.
  

• LLC owners don't need to worry about the formalities of issuing stock. A corporation must issue shares of stock as evidence of ownership, but an LLC does not issue stock.
  

• There is no limit to the number of members who may own an LLC. In contrast, Subchapter S Corporations are limited to total of 100 shareholders.
  

• Members of an LLC do not need to be U.S. citizens or permanent residents. In contrast, all S Corp owners must me U.S. citizens or permanent residents.
  

• A company may be listed as the owner of an LLC. In contrast, all shareholders in a Subchapter S corporation must be individuals, so another company may not be a shareholder in an S Corporation. In an LLC there is no such requirement. An owner/member can be another LLC or other entity.
  

• An LLC does not need to distribute income in proportion to ownership. The shareholders of a Subchapter S corporation must receive dividend according to the number of shares they own. In contrast, LLC members may split profit and loss in any way they choose an long as they follow IRS guidelines.

That said, an LLC phenomenon is relatively new and has not yet evolved into a large body of common law, as it has with corporations. But at least theoretically, an LLC affords a similar level of protection and limited liability as a corporation. Most customers and vendors prefer dealing with a corporation in the day-to-day business operations.