The formation of businesses requires adopting statutory laws to ensure businesses follow the set standards. One can choose from Limited Liability Companies (LLCs), C Corporation and S Corporations when forming a corporation. However, these options have similar and unique features in setting standards to regulate, protect, and resolve disputes of the corporations or business owners. Therefore, it is important to consider what works best for the business productivity and protection.
First, the S corporation provides a limited liability advantage to its owners regardless of its tax position since its revenue is reported as personal income. However, S corporation should have a maximum of 100 shareholders from a single state or nation only (Borden, 2018, p. 48). Also, foreign investors are not allowed to become partners, limiting the corporation from entering international markets.
Second, the C corporation offers a few more options compared to S corporation. For instance, it can have more than 100 shareholders, and foreign investors can be part of the corporation (Congressional Research Service, 2020, p. 4). C corporation can be transformed into other types of corporations, provided it meets the standard requirements. However, it suffers from double taxation since its income is taxed, and stakeholders’ dividends also receive a charge.
Lastly, LLCs offer more protection to personal assets in bankruptcy or litigation. It has less paperwork and formalities than both S and C corporations. Nevertheless, the proprietor can choose to be taxed as a pass-through entity or C corporation (Taulli, 2016, para 6). Therefore, if I am to establish a business, LLC would be the preferred choice. LLCs would save me from double taxation and reduced paperwork and protection in bankruptcy or litigation. More so, operating under LLC is flexible, suitable for small and young businesses that require less risky investment.
References
Borden, B. T. (2018). Ten reasons to prefer tax partnerships over S-corporations. NY Business Law Journal, 47. Web.
Congressional Research Service. (2020). A brief overview of business types and their tax treatment. CRS Report Prepared for Members and Committees of Congress.
Taulli, T. (2016). When to form an LLC (Limited Liability Company). Forbes.