Hi all,
I’m new to REI and I’ve been browsing through this forum, and these terms: LLC, scorp, and ccorp, come up quite often. Could someone explain to me what they are? Thank You
A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation. An LLC may be classified for Federal income tax purposes either as a partnership or a corporation. It is classified as a partnership if it has no more than two of the following corporate characteristics:
Centralization of management
Continuity of life
Free transferability of interests
Limited liability
A C-Corporation is the traditional and most common type of corporation. Forming a C-Corporation allows the company to have an unlimited number of shareholders. This is beneficial to companies which will require many investors, as well as companies who envision offering stock publicly. An inherent benefit of all Corporations and LLCs is that they shield their shareholders from personal liability arising from business debts and business lawsuits
The S-Corporation is similar in structure to that of a C-Corporation, but must meet a few further requirements. In fact, an S-Corporation is initially formed as a C-Corporation by filing the articles of incorporation with the Secretary of State. The C-Corporation can then become an S-Corporation when an extra step is taken by filing with the IRS.
Avoid “Double Tax”
The primary benefit of an S-Corporation is that it allows the shareholders to receive profits free of taxation at the corporate level. The profits will only be taxed at the individual level, thereby avoiding the “double tax” that C-Corporation shareholders are subject to. (C-Corporations are taxed at the corporate and individual level).
However, not all C-Corporations are able to take advantage of the S-Corporation status. A corporation is only eligible for the S-Corporation election if it meets the following list of ownership requirements:
The company must have no more than 75 shareholders (a husband and wife qualify as one shareholder).
All shareholders in the company must be individuals and not other corporations or LLCs (estates, some exempt organizations and certain trusts qualify as shareholders).
No shareholders can be non-resident aliens.
There can only be one class of stock in the company (this limitation disregards differences in voting rights).
The company making the election cannot be a bank or thrift institution, an insurance company, or a domestic international sales corporation (DISC).
Each shareholder must consent to the S-Corporation tax status (as explained in column K of IRS form 2553).
No more than 25% the company’s gross corporate income may be derived from passive income.
PLEASE DO THINK THAT I AM THIS SMART THIS IS HOW THE MY C.P.A. EXPLAINED THESE SO THIS IS DIRECT FROM HIM HOPE THIS HELPS ANSWER YOUR QUESTION!!
An LLC may be classified for Federal income tax purposes as a sole proprietorship (referred to as an entity to be disregarded as separate from its owner), partnership, or a corporation.
If the LLC has only one owner, it will automatically be considered to be a sole proprietorship (referred to as an entity to be disregarded as separate from its owner), unless an election is made to be treated as a corporation.
If the LLC has two or more owners, it will automatically be considered to be a partnership unless an election is made to be treated as a corporation.
If the LLC does not elect its classification, a default classification of partnership (multi-member LLC) or sole proprietorship (single member LLC) will apply.
So Dave T was I at least close? LOL thank you for clearing this up!