Dallas Incorporation
Comparing S, C, and LLC Incorporation
It's important to protect yourself and your family's assets when you're a business owner, and incorporation can help you do just that. The extent of the protection, however, along with the way you're taxed, varies by corporation type. The Dallas incorporation attorneys of the Duke Firm, PC explain the basic differences among corporate categories -- something every business owner should know.
First of all, incorporation offers major benefits, not the least of which is some degree of liability protection. Most people want the assurance of knowing that their personal assets are protected if their business should fail or be the subject of a lawsuit. How taxes are assessed also varies. Beyond that, the entities differ in both the degree of complexity and in the amount of bureaucracy involved in maintaining their status.
A C corporation is commonly used for larger businesses that may need to sell shares of stock to raise capital. C corporations pay income tax as a business, and any distributed dividends are taxed once again when the recipient pays personal income tax. An S corporation passes profits (and losses) on to shareholders; the business itself does not pay income tax. Other differences include the:
- Number of shareholders. An S corporation is limited to no more than 100.
- Residency of shareholders: Shareholders in an S corporation must be U.S. residents.
- Ownership: S corporations cannot be owned by a partnership, another corporation, or a limited liability company (LLC).
An LLC has fewer limitations than either an S or a C corporation. There are no restrictions on ownership or on the distribution of profits. The IRS, however, considers the owner of an LLC to be self-employed, so the owner must pay an annual tax of 15.3% (both the employer and the employee amounts) for Social Security and Medicare.
