Comparing: C-Corporation, S-Corporation, LLCs
This chart compares at a high level certain attributes of the C Corporation, S Corporation and LLC (limited liability company). The presence or absence of one or more attribute may influence a given startups' entity choice depending on its particular circumstances.
Attribute* |
C Corporation** |
S Corporation ** |
LLC | |
Limited liability to company owners |
√ |
√ |
√ | |
Pass-through tax treatment (entity and owners avoid "double taxation" on earnings) |
√ |
√ | ||
May the entity have more than 100 owners? |
√ |
√ | ||
May the entity have owners who are not U.S. income tax payers? |
√ |
√ | ||
May the entity have owners other than individuals, estates and certain trusts? |
√ |
√ | ||
May the entity own subsidiaries? |
√ |
Yes: with limitations |
√ | |
California tax treatment |
Subject to California Franchise tax. Minimum tax $800, tax rate 8.84% |
Subject to 1.5% tax on net income or minimum yearly tax of $800, whichever is greater |
Minimum tax $800, plus annual fee based on gross revenue.Annual Revenue Fee
| |
Methods of available accounting |
Accrual method, except if gross receipts are less than $5MM and except for personal service corporations |
Cash method okay, unless it's a tax shelter |
Cash method okay, unless it's a tax shelter | |
S Corporations and LLC's primarily engaged in service activities are allowed to use the cash method of accounting when average annual gross receipts are $10 million or less | ||||
Tax year |
May select any fiscal year if not a personal service corporation |
Generally must use fiscal year of majority interest partners or make §444 election |
Generally must use fiscal year of majority interest partners or make §444 election | |
Treatment of distributions to owner |
Not deductible by corporation; generally ordinary income to shareholder; distribution of appreciated property results in gain recognition by corporation. |
Generally nontaxable to extent of basis in stock; distribution of appreciated property results in gain recognition. |
Nontaxable to extent of basis in partnership; disproportionate distribution of Sec. 751 assets may trigger gain. | |
Salary to owner deductible |
Yes, must be "reasonable" |
Yes, must be "reasonable" |
Yes, but as guaranteed payments which can be subject to self-employment tax if general partner | |
Self-employment income to owners |
Depends upon nature of LLC. | |||
Qualified retirement plans for employee-owner |
Payments are deductible if plan is non-discriminatory |
Payments are deductible if plan is non-discriminatory. |
Payments to a Keogh Plan or SEP are deductible. | |
Life insurance for employee-owner |
Premiums for first $50,000 group-term life are deductible and not taxable to employee |
Premiums are not deductible. Reportable on partner K-1s |
Premiums are not deductible. Reportable on partner K-1s | |
Health care for employee-owner |
Payments are deductible |
Deductible by S-corporation as compensation; 100% deductible by more-than 2% shareholder |
Typically deductible by LLC as guaranteed payment: 100% deductible by member | |
* This summary comparison chart, like this website, was developed to inform the visitor about the legal services offered. None of the information contained in this chart constitutes, or is meant to constitute, legal advice. The information contained herein is not guaranteed to be correct, complete, or recent in nature, and there is neither an express nor an implied warranty as to the accuracy of the information contained.
** The letters “C” and “S” represent chapters in the IRS tax code. C corporations and S corporations are not types of corporations but types of corporate taxation.
