Incorporation & LLC Filing Services in Mission Viejo, CA

C Corporations are subject to double taxation; that is, one tax at the corporate level on the corporation’s net income, and another tax to the shareholders when the profits are distributed. S Corporations have only one level of taxation. All of their income is allocated to the shareholders.

However, C Corporations have greater tax planning flexibility and can shield shareholders from direct tax liability. C Corporations are not listed on your personal tax return.  In addition, S Corporations are subject to limitations, such as the number of shareholders they can have.

• Both C & S Corporations are owned by their Shareholders
• LLC’s are owned by their Members

• Both C & S Corporations:  No personal liability of shareholder
• LLC’s: No personal liability of members

• C Corporations: Most states allow one-person corporations; some require two or more shareholders
• S Corporations: Same as C corporation, but no more than 75 shareholders permitted
• LLC’s: Some states still require two members but California allows a single member LLC

• Both C & S Corporations: Board of directors
• LLC’s: Ordinarily members; or managers if the LLC has specified a managing member

• Both C & S Corporations: No effect
• LLC’s: In some states, dissolves unless remaining members vote to continue business

• C Corporations: Transfer of stock may be limited under securities laws or restrictions in Articles or Incorporation or Bylaws
• S Corporations: Same as C corporation –but transfers limited to persons and entities that qualify as S corporation shareholders
• LLC’s:  Unanimous consent of nontransferring members may be required under state law or operating agreement

• Both C & S Corporations: Annual meetings of shareholders required and minutes
• LLC’s:  Operating agreement necessary; meetings not normally required

• C Corporations: Initial shareholders (in some states, cannot invest with promise to perform services or contribute cash in the future)
• S Corporations: Same as C corporation –but cannot issue different classes of stock with different financial provisions
• LLC’s: Members (may invest with promise to perform services or contribute cash in the future)

• C Corporations: Flexible; outside investors (may offer various classes of shares); bank loans backed by shareholders’ personal assets (if corporation has insufficient credit history); may go public if need substantial infusion of cash
• S Corporations: Generally same as C corporation –but can’t have foreign, partnership or corporate shareholders; must limit number of shareholders to 75; can’t offer different classes of stock to investors except for shares without voting rights
• LLC’s: Capital contributions from members; bank loans backed by members’ personal assets (if LLC has insufficient credit history)

• C Corporations: May change to S corporation by filing simple tax election within 75 days of new fiscal year
• S Corporations: Generally same as C corporation –may terminate S tax status to become C corporation but cannot reelect S status for five years after
• LLC’s: May change to general or limited partnership or corporation; paperwork involved

• Both C & S Corporations: Issuance or transfer of stock subject to state and federal securities laws or must qualify for securities laws exemptions
• LLC’s: Probably not, if all members are active in business

• C Corporations: Owners who want limited liability and ability to split income between themselves and a separately taxed business
• S Corporations: Owners who want limited liability and individual tax rates to apply to business income; must be willing to meet initial and ongoing S corporation requirements
• LLC’s: Owners who want limited liability and either pass-though or corporate taxation (see below); particularly beneficial for distributing profits in a non-proportional method to capital contributed

• C Corporations: Taxed at corporate rates
• S Corporations: Individual tax rates of shareholders. no profits retained
• LLC’s: Individual tax rates of members, unless LLC elects corporate taxation

• C Corporations: Tax-deductible fringe benefits for employee-shareholders; may fully deduct medical insurance premiums and reimburse employees’ medical expenses
• S Corporations: Employee-shareholders owning 2% or more of stock are restricted from corporate fringe benefits under partnership rules
• LLC’s: Can get benefits associated with partnership or corporation, depending on tax treatment of LLC

• C Corporations: Yes, upon filing Articles of Incorporation with state corporate filing office
• S Corporations: No; must meet requirements and file tax election form with IRS (and sometimes state); revoked or terminated tax status cannot be re-elected for five years
• LLC’s: Yes, with IRS; unless LLC wished to elect corporation tax treatment; most states treat LLC same as IRS for state income tax purposes

Taxes are not due when the entity is formed, but there is an annual tax of $800 per year due to the Franchise Tax Board.