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Home Articles Corporation, S corporation and LLC
Corporation, S corporation and LLC PDF Print E-mail
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Sunday, 07 June 2009 17:12

Q: What is a corporation?
A: A corporation is a legal entity separate from its owners, and may have an unlimited number of shareholders. A major advantage of any corporate form is that it limits the personal liability of the owners for claims against the corporation. Additionally, as a separate entity, a corporation has unlimited life, extending it beyond the life of its owners. Creation of a corporation occurs when properly completed articles of incorporation are filed with the appropriate state authority, and all fees are paid.

Q: What is an S corporation?
A: An S corporation is a corporation that has elected a special tax status with the IRS. This tax treatment allows the income of the corporation to be treated like the income of a partnership or sole proprietorship; the income is "passed-through" to the shareholders. Thus, shareholder's individual tax returns report the income or loss generated by an S corporation.

Note: In order to qualify for S corporation status, the corporation must be a U.S. corporation with only one class of stock and the shareholders must number fewer than 100. These shareholders must be individuals, estates or certain qualified trusts, who consent in writing to the S corporation election. The shareholders can not be non-resident aliens.

Q: What is a Limited Liability Company?

A: The LLC is a distinct business entity. An LLC offers an alternative to partnerships and corporations by combining the corporate advantages of limited liability with the partnership advantage of pass-through taxation.

Q: What are the advantages of an LLC?
A: LLCs offer numerous advantages:
  1. Limited Liability: For the members of an LLC, liability is limited to the amount of capital which the member has invested in the LLC. Therefore, members of an LLC are offered the same liability protection as a corporation's shareholders.
  2. Pass-Through Taxation: LLC's allow for pass-through taxation. That is, the earnings of an LLC are only taxed once.
  3. Flexible Management Structure and Flexible Ownership: LLC's are generally free to establish any organizational structure agreed on by its members.

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