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Issue C Corporation S Corporation LLC
Restrictions on number or owners. Most states allow one person corporations; Some require two or more share holders Same as C Corporation, but no more then 35 shareholders permitted At least two members
Who makes management decisions? Board of Directors Same as C Corporation Ordinarily members; or managers if manager-managed LLC
Limits of transfer of ownership interests business? Transfer of stock may be limited under securities law or restrictions in Articles Of Bylaws Same as C corporation but transfers limited to persons and entities that qualify as S corporation shareholders Consent of non-transferring members usually required
Source of start-up funds Initial Shareholders (cannot invest with promise to perform services or contribute in the future) Same as C corporation but cannot issue different classes of stock with different financial provisions Members (may usually invest with promise to perform services or contribute cash in the future.)
Ease of conversion to another business form May change to S corporation by filing simple tax election; change to LLC can involve tax cost and legal complexity Generally same as C corporation – may terminate S tax status to become C corporation but cannot reelect S status for five years after May change to general or limited partnership or corporation; legal paperwork involved
How business profits are taxed Split up and taxed at corporate rates and individual tax rates of shareholders Individual tax rate of shareholders Individual tax rates of members as long as LLC meets IRS rules (has no more then two corporate characteristics)
Tax-deductible fringe benefits available to owners who work in business Tax- deductible fringe benefits for employee shareholders; may fully deduct medical insurance premiums and reimburse employees’ medical expenses Same as general partnership, but employee-shareholders owing 2% or more of stock are restricted from corporate fringe benefits under partnership rules Same as general partnership
Deductibility of business losses Corporation may deduct business losses (shareholders may not deduct losses) Shareholders may deduct share of corporate losses on individual tax returns, but must comply with special limitations Generally members entitled to deduct losses (subject to active-passive investment loss rules that apply to all businesses)
Tax level when business is sold Two levels; shareholders and corporation may be taxed on liquidation if it includes sales on transfer of appreciated property Normally taxed at personal tax levels of individual shareholders, but corporate level tax sometimes due if S corporation was formerly a C corporation Personal tax levels of individual members.

NOTICE: This general information sheet is not intended to guide you in the defenses of your particular case or provide legal advice as to your particular case. Each case is different. For legal advice on the particulars of your case, you should consult an attorney. To speak to an experienced attorney please contact Roberts & Elliott at 408-275-9800