A corporation is a separate legal entity that exists independently from its owners. A corporation is created and comes into existence when articles of incorporation (charter or certificate of incorporation in certain states) are filed with the proscribed fees, and accepted by the proper state authority
An S Corporation is merely a corporation which has elected a special tax status with the federal government. It was created for smaller business owners. The special tax treatment permits the income of the corporation to be treated like the income of a partnership or sole proprietorship in that the income is “passed through” to the shareholders.
In order to be considered an S Corporation, the stockholders of a properly filed corporation must elect such status within 75 days of formation for the current tax year, or at any time during the preceding tax year. This election is made by filing Form 2553 with the IRS. To qualify for S Corporation status:
- Must be a domestic corporation.
Only one class of stock.
Not more than 35 stockholders.
Stockholders must be individuals, estates or certain trusts.
Except for the above characteristics, an S Corporation follows the same guidelines as a regular “C” Corporation.
Limited Liability Company
A Limited Liability Company (“LLC”) is a separate legal entity that offers an alternative to partnerships and corporations by combining the corporate advantages of limited liability with the partnership advantage of pass-through taxation. An LLC is created and comes into existence when articles of organization are filed with the proscribed fees, and accepted by the proper state authority
STRUCTURE OF EACH
A corporation is owned by stockholders. While stockholders do not directly manage the corporation, they influence corporate decisions through indirect actions such as electing and removing directors, approving or disapproving amendments to the articles of incorporation and voting on important corporate decisions.
The members of the Board of Directors are responsible for managing the affairs of the corporation. Usually, directors make only major business decisions, however they supervise and appoint officers who make the
day-to-day business decisions of the corporation.
Officers are responsible for the everyday management of the corporation.
Typically, officers are appointed directly by the Board of Directors.
A stockholder may serve on the Board of Directors and also be an officer of the corporation. In fact, in most states one person is enough to form a corporation, and that person can be the sole officer, director and stockholder
S Corporation ( See DESCRIPTION of S corporation and Corporation above)
An S Corporation follows the same structure as a regular corporation. However, an S Corporation is usually owned and run by a small number of individuals or family members (one or more). Thus, while the above structure applies, the same person or related persons or a small number of persons MAY control all positions.
Limited Liability Company
An LLC is owned by its members. The members of an LLC are like partners in a partnership or shareholders of a corporation. A member will more closely resemble a shareholder if the LLC utilizes a manager or managers, because under that situation the members will not participate in the management of the LLC. However, if the LLC does not utilize managers, then the members will more closely resemble partners because they will have decision making powers in the LLC.
The member’s ownership in the LLC is represented by their respective “membership interest”, in the same manner as a partner has an “interest” in a partnership or a shareholder has stock in corporation.
Number of Members: Most states require LLC’s to have at least two members. The states which allow one member LLC’s are: DE, ID, MO, MN, NY, TX and VT.
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