Choosing the structure of your business seems like a small decision, but it is actually one of the most important that you will make.
The difference between these simple letters — C, S, LLC — can mean the difference of hundreds of thousands of dollars in taxes depending on the scale of your business.
Let’s take a look at whether the C-Corp, S-Corp, or LLC is the right structure for your company.
Choose the C-Corp if you want your business to be owned by shareholders — the corporation. The corporation is most favorable for investors, but the minimum standards to legally hold this kind of structure are much higher than the S-Corp or LLC.
The C-Corp does provide tax benefits if the business is properly structured, but it can actually expose owners to double taxation if it is not.
In most cases, you should have professional guidance if you believe your business should form itself under the C-Corp distinction.
If you are looking to form a C-Corp, you will probably need a Board of Directors, and you will also need bylaws already written to govern how the company will be run.
A business that can pay its owners a “reasonable salary” and substantial distributions may be eligible for S-Corp status. S-Corp owners are treated the same as employees in terms of taxation, but they have the advantage of paying fewer taxes on their distributions.
The minimum qualifications to legally form an S-Corp are less than the C-Corp, but more than the LLC. It is usually a proper distinction for a business that is already established with a substantial payroll.
The LLC (Limited Liability Company) is the easiest of all these structures to form and to maintain. It is also the form of business that is usually most advantageous for startups, micro businesses, and single owner companies.
Corporations that choose the C-Corp or S-Corp election face a “double taxation” issue that LLC owners do not. The LLC is not taxed as a company, but those profits that would be taxed there “pass through” to the LLC members. Each member pays taxes on his or her share of those profits.
Note: If you elect none of these three distinctions on your business, you are automatically categorized as a Partnership. This distinction comes with tax implications you should know as well, but that is beyond the scope of this article.
When it comes to choosing your business structure, Murphy Business has the experience you need.
We not only help you choose between the C-Corp, S-Corp and LLC, but we also help you structure the entire business so you can optimize your results on the selection you finally choose.
For your initial consultation, give us a call at (725) 727-7090 or fill out the easy contact form directly on our website.
We are happy to guide you through the entire process of properly forming your business and the many steps afterwards.