The LLC or Limited Liability Company is the newest form of business incorporation, and is often described as a combination of a corporation and a partnership. Over 80% of small businesses are LLCs, and for many good reasons. With less requirements and more flexible ownership options than the other entities, LLCs provide business 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).

One of the most advantageous aspects of the LLC is that it has the ability to choose how it is treated as a taxable entity. According to the IRS an LLC is, by default, federally taxed as a partnership (in the case of a multi-member LLC) or as a sole proprietor (in the case of a single member LLC). The LLC, however, may elect to be taxed as a C or S corporation at any time the members so choose. This can be useful if the income from your business tends to fluctuate.

LLCs are also flexible with regard to how the owners are paid. For an LLC, if the members choose, the net income/profits of the LLC may be allocated to the members in different proportions to their ownership percentage in the LLC. This is different from a corporation, as corporations are required to distribute profits exactly in accordance with the proportion/percentage of ownership of each shareholder.

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An S corporation is a special type of corporation that draws its designation from Subsection S of the tax code. To start an S corporation, a small business owner starts a C corporation, then files a Form 2553.

S-Corps do have more operating requirements and ownership restrictions than an LLC, but they also have significant advantages. One advantage of the S Corporation is that like the LLC it receives pass through taxation.

Pass through taxation simply means that federal income tax is not assessed at the entity level; profits are distributed in the form of dividends and flow through to the individual tax returns of the shareholders, and the IRS taxes the shareholders at their individual income tax rate and not at the entity or corporation level. Unlike an LLC, Forming an S Corporation can give you the ability to minimize payroll and self employment taxes, resulting in significant savings in certain situations.

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A C Corporation is one of several ways to legally recognize a business for tax, regulatory and official reasons. A C Corp is simply a way to structure ownership of a business, and contrasts with other popular business structures including Limited Liability Companies (LLCs), S Corporations, Sole Proprietorships and others.

Generally, a C Corporation structure is better for larger businesses. This is particularly true if they intend to publicly trade shares, through having an Initial Public Offering, or IPO. A C Corporation is much more attractive to potential investors, including venture capitalists and shareholders because it allows wider ownership of the corporation.

The majority of larger businesses in the United States are structured as C Corporations, although a C Corp could, theoretically, consist of just one person. The information below will help you decide if a C Corporation structure is right for your business.

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Incorporating your company is not always an easy process. Incfile is here to help you decide not only how to incorporate, but to understand exactly which type of status to file.

Many companies who incorporate are actually charities that do not intend to make a profit, but rather donate all profits to another organization. In this case, a charity would want to incorporate as a nonprofit and, ultimately, apply for tax exempt status. By having tax exempt status, your donations can be recorded by donors as not taxable by both the federal and state government. This is a great incentive to be able to offer your constituents.

People who start nonprofits are driven by passion about a certain cause. Whatever your cause, creating a nonprofit can make a difference. We've provided as much information as you need to know in choosing to incorporate as a nonprofit corporation.

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