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Which Business Entity Is
The Right Choice For Your Business?

LLCs, S-Corps, C-Corps, and Non Profits: How Do They Compare?

Choosing the correct entity type when forming an LLC or incorporating is an important decision. Take your time and do your homework, as this choice will have permanent consequences regarding personal liability, as well as define the tax classification designated by the IRS. Here’s how you can identify the key characteristics of each business entity type.

The LLC

The LLC (which stands for Limited Liability Company) is a popular entity type for new and small businesses, largely because it is considered to be simpler and more flexible than a corporation. The policies and cost of forming an LLC vary from state to state.

The LLC, much like a corporation, provides the LLC owners with limited liability protection. This means that the company assets are typically owned by the LLC and are separate from the personal assets from that of the LLC owner(s)

How Taxes Work in an LLC

The LLC typically does not pay taxes for itself. Instead, the net income/loss is "passed through" to the personal income of the owner(s)/member(s), and is simply taxed as personal income, and, federally it is handled very much the same as a partnership (or sole proprietorship, in the case of a single member LLC).

The S-Corporation

The S-Corporation, or S-Corp, also known as the subchapter or small business corporation, is a tax code that was created and enacted into law by congress in 1958. It was created to encourage small and family business creation, while eliminating the double taxation that conventional corporations were subjected to. The liability of the owners and investors of an S-Corp is limited to only the amount of their investment. The owners of a corporation are not personally liable for business debts, claims, or other liabilities.

How Taxes Work in an S-Corporation

Unlike traditional C-Corporations, or C-Corps, the S-Corporation is not subject to corporate income taxes. The S-Corporation is essentially a tax designation that is recognized by the IRS. Similar to the LLC, the income generated by an S-Corporation will flow through to the personal income tax returns of the shareholders. This means that the entity is not required to pay taxes on a corporate level.

The C-Corporation

A C-Corp, also known as a corporation, is a type of entity that is formed and regulated on a state level. The corporation is formed by filing Articles of Incorporation with the Secretary of State within the state of incorporation. The policies and cost vary from state to state.

The corporation is the oldest form of business entity, and has been historically a successful innovation that has allowed a group of individuals to collectively pool their resources and capital to pursue a common purpose, with their risk limited solely to the amount of stock owned.

How Taxes Work In A C-Corp

Unlike the the Limited Liability Company and the S-Corporation where the income of the company flows through to the individual tax returns of the shareholders or members, the corporation is required to file a tax return much in the same way as an individual does. There are also requirements on the way a C-Corp must be structured and function.

The Non Profit Corporation

A Non Profit Corporation is a type of corporation that donates the revenues generated to achieve a specific goal that is of public benefit. Nonprofit corporations are allowed to create profits, however those profits must be used to preserve the existence and expansion of the corporation. In the United States, nonprofit corporations is formed by filing articles of incorporation in the state in which it will operate. Incorporating the nonprofit creates a legal entity and enables the organization to be treated as a corporation by law granting it the same rights and privileges afforded to for-profit corporations.

How Taxes Work In A Nonprofit

If classified correctly, nonprofits are exempt from federal, sales, and property taxes. They do need to pay employee taxes, and can be taxed if they make money from activities not related to their main purpose. In order to be recognized as a nonprofit by the IRS the corporation must file and obtain the appropriate classification with the IRS. The majority of nonprofits must file a 501c3 with the IRS in order to receive the desired tax treatment.

DBA LLC CORP S-CORP NONPROFIT
PROTECTION
Limited Liability Protection
   DBA
Owners have no personal asset protection, which makes them personally liable for business debts.
   Limited Liability Company (LLC)
LLCs provide personal asset protection, which shields you from being personally liable for business debts.
   Corporation
C Corps provide personal asset protection, which shields you from being personally liable for business debts.
   S - Corporation
S Corps provide personal asset protection, which shields you from being personally liable for business debts.
   Nonprofit
Nonprofits provide personal asset protection, which shields you from being personally liable for business debts.
State Filing Fees
State Formation Fees
   DBA
There are required filing fees for DBAs. Fees will vary based on the county and state in which the DBA is filed.
   Limited Liability Company (LLC)
LLCs are required to pay formation fees to the state. Fees will vary based on the state of incorporation.
   Corporation
C Corps are required to pay formation fees to the state. Fees will vary based on the state of incorporation.
   S - Corporation
S Corps are required to pay formation fees to the state. Fees will vary based on the state of incorporation.
   Nonprofit
Nonprofits are required to pay formation fees to the state. Fees will vary based on the state of incorporation
Ongoing Compliance Fees
   DBA
There are no ongoing compliance fees.
   Limited Liability Company (LLC)
Depending on the state of incorporation, reports and fees may be required.
   Corporation
An annual report and franchise fees are generally due each year along with other reports and fees, which varies depending on the state of incorporation.
   S - Corporation
An annual report and franchise fees are generally due each year along with other reports and fees, which varies depending on the state of incorporation.
   Nonprofit
For Nonprofits this varies from state to state.
Managing Your Business
Flexible Management Structure
   DBA
The DBA owner may manage the business without restriction.
   Limited Liability Company (LLC)
LLCs must be member or manager managed according to the terms of the operating agreement.
   Corporation
C Corps are required to have shareholder elected directors who oversee and elect officers to run the day-to-day operations of the company.
   S - Corporation
S Corps are required to have shareholder elected directors who oversee and elect officers to run the day-to-day operations of the company.
   Nonprofit
Nonprofits are managed by their board of directors following the regulations set forth in their Bylaws.
Adding/Transferring Ownership
   DBA
DBAs cannot make ownership changes.
   Limited Liability Company (LLC)
Changes in ownership of an LLC are dependent on the terms of the operating agreement.
   Corporation
Ownership changes in a C Corp are easily made through the sell of stock to new or existing shareholders.
   S - Corporation
Ownership changes in an S Corp are easily made through the sell of stock to new or existing shareholders.
   Nonprofit
Nonprofits have no owners.
Ongoing Requirements
   DBA
There are no ongoing corporate formalities.
   Limited Liability Company (LLC)
Depending on the state of incorporation, an LLC may be required to file an annual report and/or pay franchise fees.
   Corporation
After formation, C Corps have many ongoing formalities such as writing bylaws, selecting directors, holding initial and annual shareholder meetings, and issuing stock.
   S - Corporation
After formation, S Corps have many ongoing formalities such as writing bylaws, selecting directors, holding initial and annual shareholder meetings, and issuing stock.
   Nonprofit
After formation, Nonprofits have many ongoing formalities such as writing bylaws, selecting directors, and seeking tax exempt status.
Ease of Raising Capital
   DBA
DBAs are not allowed to sell stock but may be able to obtain bank loans.
   Limited Liability Company (LLC)
LLCs are not allowed to sell stock but may be able to raise capital via bank loans and various other avenues.
   Corporation
C Corps may issue many types of stocks, which may be sold to an unlimited number of shareholders.
   S - Corporation
S Corps may issue one type of stock, which may be sold to a maximum of 100 shareholders.
   Nonprofit
Nonprofits may obtain bank loans, grants, venture capital, and tax-exempt donations. In some states, Nonprofits may sell stock.
Tax
Pass-through Taxation
   DBA
DBAs are not taxed at the company level. All profit and losses are reported on the personal income tax return of the owner.
   Limited Liability Company (LLC)
LLCs are not taxed at the corporate level. Instead, all profit and losses are reported with the personal income taxes of each member.
   Corporation
The income of the C Corp is taxed at the corporate level and then again at the shareholder level.
   S - Corporation
S Corps are not taxed at the corporate level. Instead, all profit and losses are reported with the personal income taxes of each shareholder (owner).
   Nonprofit
The income of Nonprofits is taxed at the corporate level unless they apply for and are granted tax-exempt status.
Double Taxation
   DBA
DBAs are not taxed at the corporate level.
   Limited Liability Company (LLC)
LLCs are not taxed at the corporate level.
   Corporation
The income of the C Corp is taxed at the corporate level and then again at the shareholder level.
   S - Corporation
S Corps are not taxed at the corporate level.
   Nonprofit
The income of Nonprofits is taxed at the corporate level unless they apply for and are granted tax-exempt status.
Tax Exempt
   DBA
DBAs are not eligible for tax-exempt status.
   Limited Liability Company (LLC)
LLCs are not eligible for tax-exempt status.
   Corporation
C Corps are not eligible for tax-exempt status.
   S - Corporation
S Corps are not eligible for tax-exempt status.
   Nonprofit
The income of Nonprofits is taxed at the corporate level unless they apply for and are granted tax-exempt status.
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