LEGAL ENTITY COMPARISON
Below is a list of the Pros and Cons of the various legal entities*:
| Type |
PROS |
CONS |
| “S” Corporation |
- No double taxation. – The company acts as a pass-through vehicle for the profits to pass to the owners.
- Shareholders have personal limited liability.
- Profit from S-corp NOT subject to self-employment tax.
- By incorporating, raising additional capital, adding or subtracting owners are much easier.
|
- S Corporation may not have more than 100 shareholders.
- Shareholders owning 2 percent or more in stock could have limited employee benefits.
- More government reporting requirements than an LLC
|
| “C” Corporation |
- Shareholders have limited personal liability.
- Health insurance premiums and group life insurance up to $50,000 in benefits are fully deductible by the corporation and not taxable to the employees.
- The corporate tax rate doesn’t go as high as the individual rate (what a sole proprietor or partner would pay on an individual tax return).
|
- Double taxation-the corporation pays taxes on its income and the shareholder pays taxes on dividends.
- Shareholders cannot deduct the losses of the corporation.
- More government reporting requirements than an LLC
|
| Limited Liability Company |
- No double taxation. – The company acts as a pass-through vehicle for the profits to pass to the owners personal tax returns.
- May have more than 100 members.
- Fewer government reporting regulations than Corporation
|
- A Limited liability companies are a relatively new business form and the laws are still evolving.
- There could be personal limited liability of members. Some states have decreased or eliminated the limited liability wall shielding the members from personal liability.
- Because of less governmental oversight, there is more of a chance of arrangements not completely understood by members
|
Related Articles:
Corporate Entities - Fred Wilson
*This resource is simply for reference and should not be used in place of a lawyer.
