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A limited liability company (LLC) is a business structure in the United States whereby the owners are not personally liable for the company’s debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.
One of the biggest advantages of an LLC is, its ability to be treated as a taxable entity. By default, LLCs are federally taxed as a partnership (in the case of a multi-member LLCs) or as a sole proprietor (in the case of a single member LLCs). The LLC, however, may elect to be taxed as a C or S corporation.
A C corporation (or C-corp) is a legal structure for a corporation in which the owners, or shareholders, are taxed separately from the entity. C corporations, the most prevalent of corporations, are also subject to corporate income taxation. The taxing of profits from the business is at both corporate and personal levels, creating a double taxation situation.
C-corps can be compared with S corporations and limited liability companies (LLCs), among others, which also separate a company’s assets from its owners, but with different legal structures and tax treatment.
Pass through taxation means that federal income tax is not assessed at the company level; profits are distributed in the form of dividends and flow through to each shareholder tax returns, and the IRS taxes the shareholders at their individual income tax rate. Unlike an LLC, forming an S Corporation can give you the ability to minimize payroll and self employment taxes, resulting in significant savings in certain situations.
An S corporation, also known as an S subchapter, refers to a type of corporation that meets specific Internal Revenue Code requirements. The requirements give a corporation with 100 shareholders or less the benefit of incorporation while being taxed as a partnership. The corporation may pass income directly to shareholders and avoid double taxation.
Requirements include being a domestic corporation, not having more than 100 shareholders—which includes only eligible shareholders—and having only one class of stock.
A nonprofit organization is a business that has been granted tax-exempt status by the Internal Revenue Service (IRS) because it furthers a social cause and provides a public benefit. Donations made to a nonprofit organization are typically tax-deductible to individuals and businesses that make them, and the nonprofit itself pays no tax on the received donations or on any other money earned through fundraising activities. Nonprofit organizations are sometimes called NPOs or 501(c)(3) organizations based on the section of the tax code that permits them to operate.
Every day, business owners from all over the nation choose Freedom Services to help them start and maintain their business entities.