business objectives and protect your assets. There are many important factors that affect the entity selection such as tax advantages and disadvantages.
LLCs provide maximum liability protection, can be passive, can be taxed as a partnership or a corporation, and offer flexibility in how profits are distributed. Forming an LLC can be complex depending on the purpose and structure of the company, and the State in which the LLC is formed.
Partnerships are passive entities that are easy to establish, offer different classes of ownership, can distribute property to partners in a tax-deferred manner, and avoid double taxation. Forming a partnership requires two or more people electing to conduct business together.
S Corporations are passive entities that provide asset protection, eliminate self-employment tax, shareholders can be employees and expand the range of pension plans available. Forming an S Corporation requires a special election with the Internal Revenue Service. The Corporation must also be domestic, offer only one class of stock, consist of only allowable shareholders, and have no more than 100 shareholders.
C Corporations are separate legal and taxable entities that provide maximum liability protection, with perpetual existence, and have no shareholder restrictions. Some of the disadvantages to being a C Corporation include double taxation, high regulation, extensive and costly maintenance, and complex tax rules.
Non-profits are corporations that have applied and been approved for the 501(c) tax exempt status with the Internal Revenue Service. Depending on the type of organization and how the organization is structured, the process of applying for a tax exempt status could be streamlined or unnecessary altogether.