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The following is a summary of the various forms of business we provide tax and financial services to: 

Sole Proprietorships

Is a simple form of business organization. The business is owned by one person, can be the quickest way of starting a business and the least costly to start up.

Advantages of a Sole Proprietorship

Disadvantages of a Sole Proprietorship

Partnerships

A partnership is a business structure with two or more owners. Two forms of partnerships are the general partnership and the limited partnership. In both types of partnerships, taxes pass through to the owner's personal income statement.

A general partnership can be formed with a simple oral agreement between two or more individuals. It can also be formed with a partnership agreement. Similar to a sole proprietorship, the owner's personal assets are not protected from creditors of the business.

Limited partnerships also involve two or more individuals. At least one of the partners limits his or her activity in the business to capital investments. This partner does not actively participate in the management of the business. The other(s) (called general partners or operation partners) run the day-to-day operation of the business. Under this arrangement, the limited partner's personal liability for the business debt is only as much as his or her capital investment.

Advantages of a Partnership

Disadvantages of a Partnership

Corporations

Generally, a corporation is a separate legal entity that is owned by stockholders. Generally, a corporation may have an unlimited number of stockholders that, due to the separate legal nature of the corporation, are protected from the creditors of the business. A stockholder's personal liability is usually limited to the amount of investment in the corporation and no more.

Advantages of a Corporation

Disadvantages of a Corporation

S Corporation

An S Corporation is not a different type of corporation. It is a special tax designation applied for and granted by the IRS to corporations that have already been formed. Many small business owners prefer the S Corporation because it combines many of the advantages of a sole proprietorship, partnership and the corporate forms of business structure.

S Corporations avoid this "double taxation" (once at the corporate level and again at the personal level) because all income or loss is reported only once on the personal tax returns of the shareholders.

S Corporation Restrictions

To elect S Corporation status, the corporation must meet specific guidelines.  A few of these guidelines are noted below:

The maximum number of shareholders for an S Corporation has been increased to 75.

An S Corporation may be held by an "electing small business trust." All beneficiaries of the trust must be individuals or estates, except that charitable organizations may hold limited interests. Interests in the trust must be acquired by gift or bequest — not by purchase. Each potential current beneficiary of the trust is counted towards the 75 shareholder limit on S Corporation shareholders.

S Corporations are now allowed to own 80 percent or more of the stock of a regular C corporation, which may elect to file a consolidated return with other affiliated regular C corporations. The S Corporation itself may not join in that election. In addition, an S Corporation is now allowed to own a "qualified subchapter S subsidiary."

All S Corporations must have shareholders who are citizens or residents of the United States. Non resident aliens cannot be shareholders.

S Corporations may only issue one class of stock.

Some passive activity income limitations exist.

An S Corporation can generally provide employee benefits and deferred compensation plans.

Not all domestic general business corporations are eligible for S Corporation status.

In addition, there are specific circumstances in which an S Corporation may owe income tax.

How to elect to be taxed as an S Corporation

For Federal purposes, generally, a corporation must file tax forms to elect S status within 75 days of its first day of doing business or the beginning of its fiscal year. These rules can be complicated and are extensive.  

Limited Liability Company (LLC)

LLCs were first introduced in the United States by the state of Wyoming in 1977 and authorized for pass-through taxation (similar to partnerships and S Corporations) by the IRS in 1988.

Some business professionals believe LLCs present a superior alternative to corporations and partnerships because LLCs combine many of the advantages of both. With an LLC, the owners can have the corporate liability protection for their personal assets from business debt as well as the tax advantages of partnerships or S Corporations. 

Advantages of an LLC

Disadvantages of an LLC

Important Notes regarding the information on this page: 

These lists are not inclusive. For more detailed information, please be sure to speak with a qualified legal advisor and/or contact us for your tax issues.

We are not lawyers and do not provide legal advise or legal services. The information contained on this page is NOT a substitute for legal advise and is NOT tax advise.