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Class C Corporations
Ownership
There is no real restrictions on ownership within a Class C-Corporation. There can be as many owners as desired within the specific entity. Why is this important to a business owner? Capital. With an unlimited number of owners there can be an unlimited number of shares allocated. These shares can be sold for a dollar value that is set by the business owner. The funds can be used for a number of uses; one of which is growing and building your small business.
Taxes
C Corporations are taxed at both the corporate and individual level. That is, the corporation itself pays tax on business profits and shareholders pay additional income tax for any money they draw from the corporation including salary, dividends, or bonuses.
Class S Corporations
Ownership
There are many ownership restrictions within a Class S Corporation. There can be only 75 share holders within a Class S Corporation. Of these 75 shareholders, all must be a U.S. citizens or permanent resident of the United States. Only one class of stock can be issued—no preferred stock. Not all domestic general business corporations are eligible for S Corporation status such as banks, some insurance companies, and certain affiliated groups of corporations. There are other restrictions as well.
Taxes
S Corporations elect a special tax status with the Internal Revenue Service (IRS). Rather than being treated as a separate taxable entity, the S Corporation’s income is viewed like that of a partnership or sole proprietorship and is "passed-through" to the shareholders, who report the income or loss on their individual tax returns. The S Corporation itself pays no income tax.
Limited Liability Company
What is an LLC?
The LLC or Limited Liability Corporation combines features of a corporation and a partnership. It is very useful for sole proprietors or small business owners who want to incorporate as well as protect personal assets. LLC's are popular because they combine the limited liability advantages of a corporation with the flexibility of a partnership and it is usually one of the easiest and least expensive forms to organize. For the business and its owners (who are called members or managers), many of these benefits are not available to sole proprietorships and general partnerships. It is important to realize that an LLC is a relatively new business entity and is not as widely accepted as the traditional corporation. Banks and other financial institutions are not as familiar with LLC’s as traditional corporations. The LLC is also not recognized by the IRS as a business entity. The LLC is only recognized as a business entity at the state level. It is a recognized business structure in all 50 states plus the District of Columbia. As an LLC, the IRS looks upon you as an individual for tax purposes yet you are still protected as if you were a corporation.
Ownership
There are no real restrictions on ownership within a Limited Liability Company. There can be as many owners as desired within the specific entity. The owners within an LLC are considered Organizers and not shareholders. All the same ownership applies within a Class C Corporation.
Taxes
Profits and losses pass through the LLC and reported to the individual tax return of the shareholder (same as partnership and Corps). LLC members must pay self-employment tax on all income from the LLC. Losses in the LLC can be deducted from the individual tax returns of the member thereby allowing them to offset other sources of income such as their W-2 income. An LLC allows you to decide what share of the LLC profits and losses each owner will receive.