Magazine

Table: Pros & Cons


SOLE PROPRIETORSHIP AND GENERAL PARTNERSHIP

BENEFITS

-- No special filings or rules for operating the business.

-- Profits and losses reported on owner's personal income taxes.

DRAWBACKS

-- No protection from liability or claims against the business.

REGISTRATION REQUIREMENTS AND FEES

-- None.

LIMITED LIABILITY COMPANY (LLC)

BENEFITS

-- Owners have limited personal liability for claims against the business.

-- Flexibility to apportion profits and losses.

DRAWBACKS

-- Distributions subject to self-employment taxes.

-- Venture capital and other investors prefer more traditional corporate structures.

REGISTRATION REQUIREMENTS

-- Articles of organization must be filed with a state business filing office.

REGISTRATION FEES

-- Usually under $100.

S CORPORATION

BENEFITS

-- Personal liability for claims against a business is limited.

-- Profits and losses reported on owners' personal income tax statement.

-- Salaries are subject to income and employment taxes.

DRAWBACKS

-- Profits and losses can be allocated only in proportion to each shareholder's ownership interest.

-- Some states and municipalities tax S corporations as regular C corporations.

REGISTRATION REQUIREMENTS

-- Owners file articles of incorporation with the state business filing office, IRS Form 2253, and possibly state forms.

FILING FEES

-- Depend on the number and type of shares authorized.

C CORPORATION

BENEFITS

-- Extensive case law that supports business owners' limited personal liability for claims against the business.

-- Lower tax rates on income between $50,000 and $75,000.

-- Favored by venture capital and equity investors.

DRAWBACKS

-- Income is taxed once at the corporate level and again when distributed to shareholders as dividends.

-- Separate tax structure requires separate accounting and reporting.

-- Administrative overhead such as a board of directors and annual meetings.

REGISTRATION REQUIREMENTS

-- Owners file articles of incorporation with the state business filing office.

REGISTRATION FEES

-- Depend on the number and type of shares authorized.

DATA: LLC OR CORPORATION? HOW TO CHOOSE THE RIGHT FORM FOR YOUR BUSINESS BY ANTHONY MANCUSO


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