What to Form - Corp or LLC
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S-Corp Versus LLC

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Deciding What to Form

Operating a business as a sole proprietor or general partnership requires little in the way of statutory formalities or administrative costs. However, they do not afford business owners any personal limited liability protection nor do they offer any of the tax advantages that are given to formal entities.

The chart below lists the features commonly associated with corporations and limited liability companies. It is important to familiarize yourself with the benefits of each before deciding which entity will be best for your company.

Entity Comparison Chart
Features C Corp S Corp LLC
Formation Requirements Must file Articles of Incorporation with State and pay the statutory filing fee Must file Articles of Incorporation with State and pay the statutory filing fee Must file Articles of Organization with State and pay the statutory filing fee
Personal Liability for Company Debts Shareholders are not ordinarily held liable

Shareholders are not ordinarily held liable

Members are not ordinarily held liable

Evidence
of Ownership

Shares of Stock Shares of Stock Ownership Interest
Transfer of Interest Shares can easily be transferred Shares can be transferred in accordance with IRS regulations Must be done in accordance with operating agreement
Duration Perpetual Existence - can exist beyond death or withdrawal of shareholders Perpetual Existence - can exist beyond death or withdrawal of shareholders Subject to state requirements
Management Structure Shareholders elect directors to manage entity Directors appoint officers Shareholders elect directors to manage entity Directors appoint officers Established by members in operating agreement
Administrative Formalities Required to elect board of directors and officers, hold annual meetings and file an annual report. Required to elect board of directors and officers, hold annual meetings and file an annual report. Relatively few
Pass Through Tax Treatment No, entity is responsible for paying taxes based itís on income or loss Yes, income or loss from entity passes through to shareholders Yes, Income or loss from entity passes through to members
Subject to Double Taxation Yes, entity is taxed on reported income or loss and then shareholders are taxed on any dividends received No ,entity is not taxed. Income or loss from entity gets reported on shareholders tax return No, entity is not taxed. Income or loss from entity gets reported on members tax return
Tax Forms to be filed IRS Form 1120

IRS Form 1120S

Shareholders get K-1

1 member - IRS Form 1040 Schedule C

Partnership - IRS Form 1065 Members get K-1

Raising Capital Can raise capital by selling shares of stock Can raise capital by selling shares of stock Selling of interests must be done in accordance with operating agreement

 

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