Contact Us

Tax Reduction Kits
- Tax Diary
- Tax Strategies Kit



FREE NEWSLETTER
Subscribe now to start receiving monthly tips for your small business or startup.
©2005
All rights reserved.

American Business Solutions, Inc.
Email Us

 

Which Business Entity Should I Choose?

Businesses may choose from a wide selection of corporate entities. Below are helpful descriptions of a few different kinds. If you have further questions, your legal advisors can help you decide which type of structure best suits your business needs. While American Business Solutions, Inc. does not offer legal advice, we do offer tax advice and we will help you form your new corporation or LLC in any state ... quickly, efficiently and inexpensively!

"C" Corp

The most common Corporation is known as a "C" corporation or General corporation. A general corporation may have an unlimited number of stockholders. it is usually picked by those companies planning to have 30+ stockholders or large public stock offerings. Because 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.

"S" Corp

A Subchapter S Corporation is a general corporation that has elected a special tax status with the IRS once the corporation has been formed. S corporations are best for small business owners 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. Also, if the business declares a dividend, the stockholders must report the dividend as personal income and they end up paying more taxes. S Corporations get around 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 a lot of small businesses, the S Corporation offers them the best of both worlds, by combining the tax advantages of a sole proprietorship or partnership with the limited liability and enduring life of a corporate structure.

For a S Corporation status, your corporation must have these guidelines.

  1. Stockholders (all of them) must be citizens or permanent residents of the United States.
  2. 75 is the maximum amount of stockholders a S corporation may have.
  3. If an S Corporation is held by an "electing small business trust," then all beneficiaries of the trust must be individuals, estates or charitable organizations. Interests in the trust cannot be purchased.
  4. One class of stock may only be issued or a S corporation.
  5. Only or up to 25% of the gross corporate income may be derived from passive income.
  6. Some general business corporations are not able to recieve S Corporation Status.
Exceptions:
  • A bank that is a financial institution
  • Insurance companies that are taxed under Subchapter L
  • D.I.S.C. (Domestic International Sales Corporation
  • Different affiliated groups of corporations

For more information about these and other aspects regarding S Corporation status, contact your local IRS office or legal attorney.

(LLC) Limited Liability Company

LLC's are not a corporation, but offers many of the same advantages. A lot of small business owners and entrepreneurs like LLC's because they use the "pass through"" taxation of a sole proprietorship or partnership, and have limited liability protection of a corporation. LLC's have additional advantages over corporations:

  • LLC's allow better flexibility in the organization and management or your business.
  • Foreign investors prefer LLC's because LLC's do not have the ownership restrictions of S Corporations.

 

NOTE:

Businesses may choose from a wide selection of corporate entities.   Listed here are helpful descriptions of a few different kinds.