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    © 2020, CALCULATE LLC

    • Jillian Byrnes

    C-Corp, S-Corp, Partnership, LLC?

    Updated: Aug 21, 2018

    One of our first question when launching a new business is how to structure it. This article is a great place to start.

    We all hear about these different business types but few founders of new businesses know what they mean, nevermind what is right fit for them. I'm going to take you through each of the major ones and why they might be a good option. While reading it's important to know that I'm a tax nerd and looking at it from one perspective. When considering opening a new company, you should always consult with an attorney who will have additional considerations, especially around liability.


    Sole-Proprietor

    This essentially means that you, the individual, are the business. There is no separate entity and the business income is taxed to you as a person. It's the most simple and inexpensive way to operate a business. With this simplicity though. comes some downsides as well.


    The major shortcoming of operating as a sole proprietor is that you don't receive any additional legal protection. Talk to an attorney about the impacts of liability on the business and you as an individual. On the tax side, it doesn't offer too much benefit as you can get similar tax treatments from some of the other options below.


    Partnerships



    C-Corporation

    These are the businesses people are talking about when they say "Corporate America." That's due to the fact that a C-Corp can have an unlimited number of shareholders (public companies) and there is a bit of flexibility around how ownership can be structured (share classes). But C-Corps aren't just for big businesses. They are often a good choice for startups that are looking to raise money early on. Sophisticated investors like the flexibility that C-Corps offer through rounds of funding and issuance of shares.


    C-Corps have their downsides as well. They tend to be cumbersome for small businesses with requirements like annual meetings and voting records. Taxes for C-Corps are also a bit more complicated as the profits of the business are taxed and then the dividends of that profit are also taxed.


    Highlights

    - Legally and financially separate from owners

    - Annual meeting of shareholders and directors with minutes and voting records is required

    - Taxed on company profits and shareholder dividends

    - Owners working in the business must receive W-2

    - Good or public companies, funded startups, and some other instances



    S-Corporporation

    A S-Corp is another form of Corporation but is a bit more limiting than a C-Corp


    Highlights

    - Legally and financially separate from owners


    - Profits/Losses of business are "passed-through" to owners



    LLC

    The first thing to learn is that the "C" stands for "Company" not "Corporation" (see, you've learned at least one thing!)