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Unformatted text preview: t lawyers would agree that the C corporation is the structure that provides the best shielding from
personal liability for owners, and provides the best non-tax beneﬁts to owners. This is a separate legal
entity, different from its owners, which pays its own taxes. Most lawyers would also probably agree
that for a company that has ambitions of raising major investment capital and eventually going public,
the C corporation is the standard form of legal entity.
The S corporation is used for family companies and smaller ownership groups. The clearest distinction
from C is that the S corporation’s proﬁts or losses go straight through to the S corporation’s owners,
without being taxed separately ﬁrst. In practical terms, this means that the owners of the corporation
can take their proﬁts home without ﬁrst paying the corporation’s separate tax on proﬁts, so those
proﬁts are taxed once for the S owner, and twice for the C owner. In practical terms, the C corporation
doesn’t send its proﬁts home to its owners as much as the S corporation does, because it usually has
different goals and objectives. It often wants to grow and go public, or it already is public. In most
states an S corporation is owned by a limited number (25 is a common maximum) of private owners,
and corporations can’t hold stock in S corporations, just individuals.
Corporations can switch from C to S and back again, but not often. The IRS has strict rules for when
and how those switches are made. You’ll almost always want to have your CPA and in some cases
your attorney guide you through the legal requirements for switching. Limited Liability Company
Be careful with this one, because the Limited Liability Company (LLC) form is different for different
states, with some real advantages in some states that aren’t relevant in others. An LLC is usually a
lot like an S corporation, a combination of some limitation on legal liability and some favorable tax
treatment for proﬁts and transfer of assets. This is a newer form of legal entity and often harder to
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This note was uploaded on 01/26/2014 for the course BUINESS 102 taught by Professor Unknown during the Winter '09 term at University of Phoenix.
- Winter '09