All corporations are categorized as companies. However, not all of them are categorized as corporations. The commonest form of company is the LLC or Limited Liability Company that functions as a distinctive tax entity that is detached from the C Corporation tax entity.
C Corporations are less prevalent in the current tax landscape. There are circumstances where this company filing status makes financial sense to integrate your business. In this article, we will understand the differences between an LLC and C Corp to help you make the right decision.
Savvy And Suite is a leading company that provides unique perspectives to C Corporation to assist in the sustainability and growth of the business. The tax experts at this company provide C Corp vs S Corp comparison and guidance on the choice of entity.
What Is an LLC?
LLC is an ideal choice for small businesses that want a formal business structure compared to a sole partnership or proprietorship.
An LLC assists the business owners to restrict their accountability for business obligations. Compared to C Corp or S Corp, an LLC is flexible in terms of business operation, tax status, profits distribution, and record-keeping needs.
About an S Corp
An S corporation is a form of tax classification. Here the profits of the company directly pass through the owners. A corporation doesn’t require paying corporate income tax. Both corporations and LLCs choose an S corp. taxation.
When talking about C Corp vs LLC, their structure forms a major difference. Corporation owners are categorized as shareholders, whereas LLC owners are elected as members.
About a C Corp
C Corporation is a type of entity that is owned by stockholders who buy a specific number of shares of stock. It differs from an S corp as it is a pass-through entity that is taxed on personal returns of shareholders in place of a business return.
Furthermore, a C corp is susceptible to double taxation. The gains of a C corp business, as well as the shareholder that are made on the dividend distribution can be taxed.
C corp is owned by a board of directors or shareholders that act as the main decision-makers for the firm. The board establishes bylaws that direct the way how a business executes. It is different from a sole proprietorship where the person along with the firm is the same.
In C corp, the shareholders have very little involvement in the firm. Such corporations are heavily and strictly regulated. They have a rigid structure that makes it easy for stockholders to understand. As LLC structures vary, they take time to understand. This makes them less appealing to stockholders.
LLCs can opt to be taxed in the form of a corporation. A few LLC owners can save money by choosing S corp. tax status. However, the right classification of tax to save company money isn’t that straightforward. It is important to consider the profitability, potential taxes, and plans for retirement and growth of the business.