C-corp S-corp

[EmpirE231]

thought I'd ask on here since this place is full of information:D ... what are the major differences between the c/s corporation? benefits / downside of each?
my current business is a sole-propriotorship... and looking to incorporate. Keeping it private with 50/50 share between me and my brother. just looking for some positives and negative on the whole c - s ??
thanks

[SB]

The c corp pays its own taxes, meaning it has to do a return
The S corp passes through the income to the owners, so they report the income on their own personal tax returns. Up to 35 people.
Use the S corp.

[C-2]

And just be ready for the long haul cuz a corporation exists in perpetuity (meaning forever, until it is sold or properly dissolved with tax clearance).
Once you file, the State will have their meathooks in you, so be prepared to pay your taxes and file your returns on a timely basis. Otherwise, if you go delinquent on your franchise taxes/returns, the fees will kill you. If you ever need to sell your biz, or dissolve it, you can’t do so unless your taxes are paid. So make sure the timing is right, otherwise it can create a lot of headache in the future.
If you’re doing it to separate liability, it’s easier and more effective to put a big, fat insurance policy in place.
Sounds like ya must be do something right :)

[EmpirE231]

thanks for the replies guys. taxes have always been paid on time, and plan on continuing to do so! have a payroll company that takes care of most of my filings.
so it seems that S-corp is a better way to go... already have BIG insurance policies to cover, but you can never be too safe. 1 accident can cost you everything.
any other opinions? :idea:

[DaddyMack]

If you have the choice in your state, go with LLC. If you want to PM me.. will give you a little insight...
C - forget in your situation.
S - is similar to LLC in a lot of respects, except more freedom and less stringent requirments (at least from legal perspective).

[Ziggy]

If you have the choice in your state, go with LLC. If you want to PM me.. will give you a little insight...
C - forget in your situation.
S - is similar to LLC in a lot of respects, except more freedom and less stringent requirments (at least from legal perspective).
LLC seems to be where most are or have gone these days. I'm a "S" corp and have considered LLC but my advisors still say S is best for my situation.

[HM]

It depends on what your goals are. On two of my businesses, we just went back to C Corp for 2007.
Robert Kyosaki has a good book out that explains all pros and cons of corps, LLC's, sole proprietor ships and etc....the book is called "Own Your Own Corporation" and you can get it on amazon. Great book - even my lawyer who manages my corps learned a lot from these books.
There is no general rule. Accountants and Lawyers like to say S Corp. C corps are more complicated, but there are some great positives if you can use them. LLC's are great for certain things as well. All depends on why you need a corporation.

[bohica]

Some good reading.
Some good reading:
Corporations Compared to Sole Proprietorships and Partnerships
Corporations enjoy many advantages over partnerships and sole proprietorships. But there are also disadvantages. We cover the most important ones below.
Advantages:
Stockholders are not liable for corporate debts. This is the most important attribute of a corporation. In a sole proprietorship and partnership, the owners are personally responsible for the debts of the business. If the assets of the sole proprietorship or partnership cannot satisfy the debt, creditors can go after each owner's personal bank account, house, etc. to make up the difference. On the other hand, if a corporation runs out of funds, its owners are usually not liable.
Please note that under certain circumstances, an individual stockholder may be liable for corporate debts. This is sometimes referred to as "piercing the corporate veil." Some of these circumstances include:
If a stockholder personally guarantees a debt.
If personal funds are intermingled with corporate funds.
If a corporation fails to have director and shareholder meetings.
If the corporation has minimal capitalization or minimal insurance.
If the corporation fails to pay state taxes or otherwise violates state law (like defrauding customers).
Self-Employment Tax Savings. Earnings from a sole proprietorship are subject to self-employment taxes, which are currently a combined 15.3% on the first $90,000 of income. With a corporation, only salaries (and not profits) are subject to such taxes. This can save you thousands of dollars per year.
For example, if a sole proprietorship earns $80,000, a 15.3% tax would have to be paid on the entire $80,000. Assume that a corporation also earns $80,000, but $40,000 of that amount is paid in salary, and $40,000 is deemed as profit. In this case, the self-employment tax would not be paid on the $40,000 profit. This saves you over $5,000 per year. Please note, however, that you should pay yourself a reasonable salary.
Continuous life. The life of a corporation, unlike that of a partnership or sole proprietorship, does not expire upon the death of its stockholders, directors or officers.
Easier to raise money. An corporation has many avenues to raise capital. It can sell shares of stock, and it can create new types of stock, such as preferred stock, with different voting or profit characteristics. Plus, investors be assured that they are not personally liable for corporate debts.
Ease of transfer. Ownership interests in a corporation may be sold to third parties without disturbing the continued operation of the business. The business of a sole proprietorship or partnership, on the other hand, cannot be sold whole; instead, each of its assets, licenses and permits must be individually transferred, and new bank accounts and tax identification numbers are required.
Disadvantages
Higher cost. Corporations cost more to set up and run than a sole proprietorship or partnership. For example, there are the initial formation fees, filing fees and annual state fees. These costs are partially offset by lower insurance costs.
Formal organization and corporate formalities. A corporation can only be created by filing legal documents with the state. In addition, a corporation must adhere to technical formalities. These include holding director and shareholder meetings, recording minutes, having the board of directors approve major business transactions and corporate record-keeping. If these formalities are not kept, the stockholders risk losing their personal liability protection. While keeping corporate formalities is not difficult, it can be time-consuming. On the other hand, a sole proprietorship or partnership can commence and operate without any formal organizing or operating procedures - not even a handwritten agreement.
Unemployment tax. A stockholder-employee of a corporation is required to pay unemployment insurance taxes on his or her salary, whereas a sole proprietor or partner is not. Currently, the federal unemployment tax is 6.2% of the first $7,000 of wages paid, with a maximum of $434 per employee.
If you pay any required state unemployment tax, you can receive an offset credit of 5.4%, effectively lowering the federal rate to 0.8%, for a maximum of $56.00 per employee per year.
Corporations compared to LLCs
Limited liability companies are a relatively new type of business entity that combine the personal liability protection of a corporation with the tax benefits and simplicity of a partnership. However, there are still other important differences. The following discusses the main advantages and disadvantages of corporations versus LLCs.
Advantages of Corporations:
Profits are not subject to social security and medicare taxes. Like a sole proprietorship or a partnership, salaries and profits of an LLC are subject to self-employment taxes, currently equal to a combined 15.3%. With a corporation, only salaries, and not profits, are subject to such taxes.
Greater Acceptance. Since limited liability companies are still relatively new, not everyone is familiar with them. In some cases, banks or vendors may be reluctant to extend credit to limited liability companies. Moreover, there are restrictions as to the type of business that an LLC may conduct in some states.
Greater variety of, and fewer taxes on, fringe benefits. Corporations offer a greater variety of fringe benefit plans than any other type of business entity. Various retirement, stock option and employee stock purchase plans are available only for corporations. Plus, while sole proprietors, partners and employees owning more than 2% of an S-corporation must pay taxes on fringe benefits (such as group-term life insurance, medical reimbursement plans, medical insurance premiums and parking), stockholder-employees of a C-corporation do not have to pay taxes on these benefits.
Income Shifting. Although C-corporations are subject to double taxation, they also offer greater tax flexibility. In a C-corporation, you can use income shifting to take advantage of lower income tax brackets.
To illustrate, let's take the example of a company that earns $100,000. With a sole proprietorship, a business owner who is married (filing jointly) would be in the 25% income tax bracket. With a corporation, assume that the business owner takes $50,000 in salary and leaves $50,000 in the corporation as a corporate profit. The federal corporate tax rate is 15% on the first $50,000. Furthermore, the business owner is now in the 15% tax bracket for his or her personal income tax. This can reduce your overall tax liability by over $8,000.
Advantages of LLCs
Fewer corporate formalities. Corporations must hold regular meetings of the board of directors and shareholders and keep written corporate minutes. Members and managers of an LLC need not hold regular meetings, which reduces complications and paperwork.
No ownership restrictions. S-corporations cannot have more than 100 stockholders, and each stockholder must be an individual who is a resident or citizen of the United States. Also, it is difficult to place shares of an S-corporation into a living trust. None of these restrictions or difficulties apply to an LLC (or a C-Corporation).
Ability to deduct operating losses. Members who are active participants in the business of an LLC are able to deduct operating losses of the LLC against their regular income to the extent permitted by law. Shareholders of an S-corporation are also able to deduct operating losses, but not shareholders of a C-corporation.
Tax flexibility. By default, LLCs are treated as a "pass-through" entity for tax purposes, much like a sole proprietorship or partnership. However, an LLC can also elect to be treated like a corporation for tax purposes, whether as a C-corporation or an S-corporation.