corporation vs llc

Corporation vs.
LLC Comparison




corporation vs llc Logo corporate tax form

Corporation vs LLC
Professional Group Practice Options

Corporation Advantages *
corporation vs llc Is the only limited liability organization that is available to most licensed professionals in California (including dentists and doctors).
corporation vs llc May elect a non-calendar fiscal year, providing opportunities for shareholders to accelerate or delay recognition of income (C corporations only).
corporation vs llc May obtain significant tax benefits not available to LLC (S corporation and C corporation have different benefits; see C corporations vs S Corporations for details).
corporation vs llc No income tax owed by shareholders of insolvent corporation for "cancellation of debt" (solvent LLC members of insolvent LLCs are generally taxed on the amount of bad debt cancelled).
LLC Advantages*
corporation vs llc Less annual paperwork (no annual minutes required, and no separate LLC tax return required for a one person LLC).
corporation vs llc Far more freedom to creatively arrange differential capital contributions, profit distributions, loss allocations, preferential payments and voting arrangements between owners.
corporation vs llc Fewer limitations and burdens on trust ownership of LLC (dangers exist for trust ownership of S corporation).
corporation vs pllc Creditors of members cannot seize membership interests (and thus take some management control to force extra distributions), but can only attach earnings of the member/debtor as previously authorized by the LLC.
corporation vs pllc Loans personally guaranteed by members are added to basis, so if significant losses are anticipated those increased losses may be claimed as an additional tax deduction.
A Special Word on LLC/PLLCs Taxed as an S Corporation:

Some professionals advise forming an LLC while electing to be taxed as an S corporation. This election takes away some of the benefits of being an LLC: (1) it requires the LLC to follow S corporation rules (no "creative arrangements" or corporate members allowed, to name a few), (2) the level of initial filings, tax returns and other tax complexity is significantly higher, and (3) the increased potential for confusion and mistakes by members and professionals, due to state and federal laws that do not provide clear answers on the treatment of this hybrid entity.

However, delaying the S election until the year after obtaining a business acquisition/startup loan can provide the best of both worlds - allowing your personally guaranteed loan to be included in basis (so you can deduct those large losses the first year), but taking advantage of the lower payroll tax for distributions in subsequent years when you become profitable.

* This tax comparison of corporations and LLCs is intended to address a typical startup of a small business organization. This comparison is not exhaustive, nor does it apply necessarily in each and every circumstance. The contents of this website are not intended to be, nor shall they be considered, legal advice or legal opinions. Please see your CPA and/or attorney for more thorough coverage of the subject.

CAVEAT: Pursuant to applicable federal regulations, we are required to inform you that any advice contained in this communication is not intended to be used nor can it be used for purposes of (1) avoiding tax penalties or (2) promoting, marketing or recommending to another party any transaction or matter addressed above.

Incorporation.Law.Pro | Dental.Law.Pro
1997-2014 by Robert W. Olson, Jr. All rights reserved.