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There is an important distinction between a type of legal entity and the types of tax classifications available to each entity. Many articles blur the lines between the two creating much of the confusion in the entity selection process. Introduction By far, the most common question that callers ask us is "which is better, a corporation or an LLC?
Rather than just preparing the necessary paperwork, we ask some questions about their business and the people involved. We often turn the question around and ask why they have decided to form an LLC rather than a corporation.
Perhaps the point of this article is best made by using a different context. Howare you going to use the vehicle? How many people do you need to transport?
Do you need a pickup bed for your work? Will this be a family vehicle where you need the extra seating and entertainment features? This article discusses those factors and their importance in making an informed decision on the best entity type and best tax classification Choosing a treasurer you and your business.
How to Use the Information in this Article The purpose of this article is to provide you with a better understanding of the most common factors that are often overlooked in deciding between a corporation and an LLC as well as the best tax classification for that entity.
These are complex issues which would require an exhaustive article to cover in full. This article should therefore be used as a starting point in a discussion with your legal or financial advisor to make the appropriate determinations in your case.
Here are some essential principles to understand and keep in mind as you read the article: Corporations and LLC's are types of legal entities. S Corporations and C Corporations are not types of legal entities; they are tax classifications under the Internal Revenue Code.
A corporation, when formed, is automatically assigned the C Corporation tax classification under the Internal Revenue Code. An LLC, when formed, is automatically assigned a tax classification under the Internal Revenue Code based upon the number of members.
A single-member LLC is automatically treated as a "disregarded entity. The type of legal remains the same—only the tax classification changes to impact how the entity reports and pays taxes.
This is where many people become confused--an LLC may elect to be taxed under the C Corporation tax classification or S Corporation tax classification.
How does this work?
For all tax-related purposes, the C Corporation or S Corporation tax provisions apply. An LLC choosing to be taxed under the S Corporation tax classification therefore files federal income tax form S, the same tax form that a corporation files when it elects the S Corporation tax classification.
The owners always remain members, not shareholders; the governing document continues to be an operating agreement, not bylaws; the company is managed by the members or a manager, not by officers or directors though an LLC has the option of appointing officers, they are required in a corporation.
There's usually a balancing of advantages and disadvantages that must be done in each case to be confident in the decisions you've made.
Let's focus first on the factors involved in choosing between a corporation and an LLC. Here are the major characteristics most often discussed in comparing corporations and LLC's.
Each is discussed in the paragraphs that follow: Protection for Personal Assets 2. Recordkeeping and ongoing maintenance requirements Protection for Personal Assets There's a mistaken belief that an LLC offers better protection for your personal assets than a corporation.
This no doubt arises from the fact that LLC is an acronym for "limited liability company. Many people therefore assume that an LLC offers personal asset protection whereas a corporation does not.
This is not the case. The general rule, with rare exceptions, is that shareholders in a corporation have the same personal liability protection for their assets as members in an LLC.Choosing a Depository Relationship.
Steps for an Agency to Identify a Depository for Daily Receipt of State Funds. This contact is made via letter that directs that bank to the NC Department of State Treasurer website where the Guidelines for Official Depositories of State Funds is located.
What To Look For In A Campaign Treasurer Every campaign needs a treasurer, whether it be for a small town city council race or a Senate election. But choosing the wrong person for the job can be. The Inn at Grand Glaize is a Lake Ozark Resort conveniently located in a secluded cove just 1/4 mile west of the Grand Glaize Bridge and only minutes from numerous attractions and activities.
There is an important distinction between a type of legal entity and the types of tax classifications available to each entity. Many articles blur the lines between the two creating much of the confusion in the entity selection process.
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It is, as President Reagan might have said, a time for choosing. The essential question is very simple. The ABIM Board of Directors are leaders in the quality improvement and advancement of internal medicine. See a list of Board members here.