Business Entities: Limited Liability Company, S Corporation and C Corporation

There are many important decisions that businesspeople need to make in order to ensure the success of their companies. Among those important decisions is choosing the right legal structure for their business. The choice they make will determine the taxes they pay, the documents they need to file, the personal liabilities they’d have to face, etc. Since choosing a business structure is critical to any business, it is imperative that you have a corporate lawyer in Orange County contracted for have legal counsel in these matters.

Two of the most popular legal business structures are Limited Liability Company (LCC), S Corporation (S Corp) and C Corporation (C Corp). You need a corporate lawyer in CA to help you decide which one is best for you, but here are a few pointers to illustrate the difference between each:

What is an LLC? 

A Limited Liability Company, or, LCC, is a combination of a partnership and a corporation. In this type of business entity, there are no shares. The main advantage of this structure is that the liabilities of the owners are limited. The personal assets of the owners are separate from the company’s assets, and therefore cannot be affected if the business runs into financial trouble and/or faces lawsuits.

In terms of taxes, an LCC does not file separate taxes. In cases where there is only one member in an LLC, the company taxes will be filed under the individual member’s tax returns. In cases where there are multiple members, the company will file a partnership tax return. All of the LLC’s income flows through to the owners and is taxed at the personal income category.

S Corporation vs. C Corporation 

An S Corp actually starts off as a C Corp. Then, after undergoing incorporation, the owners submit necessary documents to the IRS in order to be treated as a pass-through business entity. An S Crop, just like a regular corporation, is a company with a set of stockholders who share ownership of the company. The difference is that in an S Corp, the profits, and the losses of the company are passed through to each stockholder’s personal tax statement.

Tax Implications of LLCs and S Corps

When it comes to federal income tax, LLCs and S Corps are both categorized as pass-through business structures. With these kinds of business structures, the companies themselves are not taxed. Instead, the business’s profit and losses are reported on the individual owner’s tax return. It is always best to have a corporate attorney in Orange County, California around so that you can get proper legal counsel when it comes to taxations.

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