Entity Comparison Chart

By Rob Hassett

CAUTION – THIS CHECKLIST HAS BEEN PREPARED FOR GENERAL EDUCATION PURPOSES ONLY AND DOES NOT CONSTITUTE SPECIFIC LEGAL ADVICE. THERE ARE MANY EXCEPTIONS TO THE INFORMATION SET FORTH IN THIS CHART AND THEREFORE ANY READER SHOULD RELY ONLY ON THE ADVICE OF A PROFESSIONAL TAX ADVISER WITH RESPECT TO TAX RELATED MATTERS.

(1)  Applies to All Three:

CONSIDERATION

C CORP

S CORP

LIMITED LIABILITY COMPANY*

Limited Liability

Yes

Yes

Yes

(2)  Reasons to Use C:

CONSIDERATION

C CORP

S CORP

LIMITED LIABILITY COMPANY*

Number of Owners

No restrictions

1-75

No restrictions unless publicly traded

Tax Year

May be fiscal

Usually calendar

Usually calendar

Deductions for health insurance

Yes

Yes

Yes

Fed tax on income left in business

Essentially 34%

Up to 35%

Up to 35%

Qualified small business stock (10% on capital gain)

Yes

No

No

(3)  Reasons to Use C or S:

CONSIDERATION

C CORP

S CORP

LIMITED LIABILITY COMPANY*

Expenses of setup

Inexpensive w/out shareholder agreements, incentive stock options, etc.

Inexpensive w/out shareholder agreements

Usually more expensive where advantageous (to deal with allocations, capital accounts, etc.)

1244 Stock (ordinary loss on sale or liquidation)

Yes

Yes

No

Tax deferred reorganization

Yes

Yes

No

ISO’s allowed

Yes

Yes

No

Gain on redemption taxed at ordinary income rates to extent of receivables

No

No

Yes

(4)  Reasons to Use C or LLC:

CONSIDERATION

C CORP

S CORP

LIMITED LIABILITY COMPANY*

Allowed Owners

No restrictions

Individuals and Certain Trusts, or 100% by S

No restrictions

Classes of Ownership

Yes

Voting v. non-voting only

Equivalent to C available

(5)  Reasons to Use S:

CONSIDERATION

C CORP

S CORP

LIMITED LIABILITY COMPANY*

FICA including Medicare reductions

No

Yes

No

(6) Reasons to Use S or LLC:

CONSIDERATION

C CORP

S CORP

LIMITED LIABILITY COMPANY*

Levels of Federal Taxation

2

1

1

Levels of State Taxation

2

1

1 in most states

Long-Term Capital Gain

Federal Income Tax at full rate on corporation’s gains

Federal Income Tax at 15% to shareholders

Federal Income Tax at 15% to Members

Accumulated Earnings Tax

Yes

No

No

Cash method of accounting

Generally allowed if under $5 million in sales (Restrictions apply when primary business is sale of inventory)

Generally allowed (Restrictions apply when primary business is sale of inventory)

Generally allowed if not owned by particular types of C corporations (Restrictions apply when primary business is sale of inventory)

(7)  Reasons to Use LLC:

CONSIDERATION

C CORP

S CORP

LIMITED LIABILITY COMPANY*

Losses

Don’t pass through

Can’t be allocated

May be allocated

Later Conversion subject to tax on built in gains

C to S (yes ultimately)

C to LLC (yes)

S to C (no)

S to LLC (yes)

LLC to S (no)

LLC to C (no)

* The members of a limited liability company may elect that the limited liability company be treated for tax purposes as a C corporation, an S corporation or a partnership. For purposes of this checklist, it is assumed that the members have elected that the limited liability company be treated for tax purposes as a partnership.

Rob Hassett 3/15/2000 Revision.

 

This entry was posted in Corporate, Law by Rob Hassett. Bookmark the permalink.

About Rob Hassett

Rob Hassett is an attorney in technology, entertainment and corporate law with Hassett Law Group/Business Law Partners in Atlanta, GA. He is a co-author of a leading volume on internet and interactive media law and has taught many classes in the professional education program at Georgia Tech.

Leave a Reply