Both corporate entities are excellent choices for business owners looking to minimize their personal liability and build greater credibility. Each entity offers distinct tax and business advantages. Choosing the right one depends on the specific needs of the business.
Corporations offer:
- Personal liability
- Tax savings
- Increased opportunities for raising capital
Corporations are also required to perform certain formalities such as holding annual meetings and keeping detailed corporate records (minutes), however, corporate meetings and records can be held and kept anywhere in the world.
There are two types of Corporations:
"C" Corporation
- Personal liability protection for owners
- Taxed at corporate and individual level
- Formal meetings and corporate minutes
- Annual state reports
- No membership restrictions
"S" Corporation
- Personal liability protection for owners
- Income/loss passed directly to shareholders
- Formal meetings and corporate minutes
- Annual state reports
Membership restricted to 100 shareholders
Limited Liability Companies (LLC)
Offer the same personal liability protection as a corporation, but with fewer of the corporate formalities. The LLC typically are not
- Required to hold formal meetings or keep detailed corporate minutes
- Offer great tax flexibility
- Income/loss passed directly to members
- Can option to be taxed as either a traditional corporation “C” or “S” or as a "pass-through" entity and file a partnership return if they have two or more members
- Personal liability protection for owners
- No membership restrictions