welcome to the learning library
The Learning Library was created to inform entrepreneurs about the different types of business structures and services they should be aware of prior to starting the business formation process.
We recommend reading the FAQ for your business type.
Limited Liability Company
(LLC)
As the name implies, an LLC provides limited liability protection from its owner(s), who are called members. This business structure uses "pass-through" taxation by default meaning it is not subject to double taxation like a C corporation. An LLC provides the most flexibility in regards to how it is treated for tax purposes and is subject to fewer operational requirement when compared to corporations making it the most popular legal entity choice for entrepreneurs.
Corporation
(C-Corp)
A C corporation provides limited liability protection from its owners, who are called shareholder(s). By default, this business structure is subject to double taxation (the corporation pays taxes on profits and the shareholder(s) also pay taxes on the dividends received). However, a C corporation may elect to be treated as an S corporation and "pass through" income or losses to the shareholders, avoiding double taxation. Corporations have more operational requirements than LLCs.
S-Corp Election
(Applicable to LLCs and Corporations)
Contrary to what most entrepreneurs have been told, an S corporation is not a business entity, rather it is an election that is made for tax treatment purposes. Both a LLC and a Corporation can elect to be treated as an S-Corp. Click on "S-Corp FAQ" to determine if making an S-Corp election for you LLC or C-Corp is right for you. (Don't worry, you'll be asked if you need help with this paperwork too!)
Nonprofit / 501(c)(3)
A nonprofit corporation is created to perform religious, education, charity, literary or scientific work. Since the work performed by the nonprofit is a benefit to the common public, nonprofits are eligible to receive tax-exempt status, meaning the nonprofit does not pay state or federal taxes income taxes on any profits made. Nonprofits are required to file with the IRS to obtain a tax exemption status which is a different process than registering the nonprofit with the state.
Sole Proprietorship
A sole proprietor is an individual who owns an unincorporated business by him or herself. There is no paperwork to be filed with the state if you choose to operate as a sole proprietor however you can be held personally liable for debts and obligations of the business. Our partners can assist sole proprietors by applying for a fictitious name and employer identification number.
Fictitious Name / Doing Business As (DBA)
A fictitious name (also known as "doing business as" or "DBA") is applicable in two scenarios. (1) You are a sole proprietor who wishes to conduct business utilizing a name that is different than your personal legal name. (i.e. you wish to operate under the name "Sunshine Landscaping" instead of "John Doe") or (2) You have incorporated a business and you wish to conduct business under a name that is different from the entity's legal name. (i.e. Your business is incorporated as "John Doe, Inc." but you wish to operate as "Sunshine Landscaping").
Employer Identification Number (EIN)
An EIN is a 9 digit number assigned by the IRS and is required to be able to identify the tax account of employers and others who do not have employees. The EIN is a requirement to establish a bank account for your business. Applying for an EIN is a different process than registering your business with the state. All of our partner's business formation services includes the option to have us apply for an EIN and communicate with the IRS on your company's behalf.
Registered Agent Service
The state your business is formed in requires each business to elect a registered agent (RA). An RA is the person or business entity that will accept service of process (lawsuit) notices, correspondence from the Secretary of State and other notifications – such as tax forms. You’ll need a company to serve as your RA if you do not have a physical address (i.e. a PO Box), are not available every day during normal business hours (vacations, business trips, etc.) or simply want to avoid falling out of “good standing” with the State and risk penalties such as fines or revocations.
Annual Reports & Maintenance
Your business is required to file an Annual Report (AR) with your state's Division of Corporations each year to maintain an active status. Our partner's can make sure your business files its Annual Report each year avoiding late fees which can be in excess of $400. We also perform other maintenance such as reinstatements, dissolutions, and registered agent changes.
Review the business entity table below so that you can make the correct decision when choosing the entity type that is best for your unique business.
| Sole Proprietorship | Single Member LLC | Multi Member LLC | C Corporation | S Corporation* | |
|---|---|---|---|---|---|
| Limited Liability Protection | No | Yes | Yes | Yes | Yes |
| Default Tax Treatment |
Pass-through taxation: Owner reports profits or losses on personal tax return by completing Schedule C and attaching it to Form 1040, Individual Income Tax Return. |
Pass-through taxation: Taxed as a sole proprietor. Owner, called a member, reports profits or losses on personal tax return by completing Schedule C and attaching it to Form 1040, Individual Income Tax Return. |
Pass-through taxation: Taxed as a Partnership and therefore an informational tax return is required. Owners, called members, report profits or losses on Form 1065, Return of Partnership Income. Each partner (member) is issued a K-1 for their portion of the profits or losses and the K-1 is used to file the partner's (member's) Form 1040, Individual Tax Return. |
Double taxation: Corporation Tax Return is completed and the Corporation is taxed on its profits or losses. The owners, called shareholders, are then taxed on dividends distributed to them on Form 1040, Individual Income Tax Return. |
Pass-through taxation: S-Corporation Tax Return is filed. Owners, called shareholders, report profits or losses on Form 1120s, Income Tax Return of an S Corporation, Each shareholder is issued a K-1 for their portion of the profits or losses and the K-1 is used to file the shareholder's Form 1040, Individual Tax Return. |
| Optional Tax Treatment | N/A | Can elect to be treated as an S Corporation for tax purposes and potentially save money on self-employment taxes when compared to the default LLC tax treatment. | Can elect to be treated as an S Corporation for tax purposes and potentially save money on self-employment taxes when compared to the default C Corporation tax treatment. | Can elect to be treated as an S Corporation for tax purposes and potentially save money on self-employment taxes when compared to the default C Corporation tax treatment. | N/A |
| Operational Requirements | None required. | Although not required, it is recommended to record meeting minutes and have an operating agreement to ensure the LLC maintains liability protection from its members. | Although not required, it is recommended to record meeting minutes and have an operating agreement to ensure the LLC maintains liability protection from its members. | Establish bylaws, perform initial and annual shareholder meetings, record meeting minutes | Establish bylaws, perform initial and annual shareholder meetings, record meeting minutes |
| Number of Owners | One owner | One Member | Unlimited Members | Unlimited Shareholders | Up to 100 Shareholders |
| S Corporation requirements | N/A | If electing to be treated as an S Corp for tax purposes, then: (1) Corporation must be domestic (conducts its affairs in the U.S.) (2) Shareholders must be U.S. Citizens or resident aliens and shareholders cannot be partnerships or corporations (3) Have no more than 100 shareholders (4) Have only one class of stock (5) not be a financial institution, insurance company, or domestic international sales corporation. | If electing to be treated as an S Corp for tax purposes, then: (1) Corporation must be domestic (conducts its affairs in the U.S.) (2) Shareholders must be U.S. Citizens or resident aliens and shareholders cannot be partnerships or corporations (3) Have no more than 100 shareholders (4) Have only one class of stock (5) not be a financial institution, insurance company, or domestic international sales corporation. | If electing to be treated as an S Corp for tax purposes, then: (1) Corporation must be domestic (conducts its affairs in the U.S.) (2) Shareholders must be U.S. Citizens or resident aliens and shareholders cannot be partnerships or corporations (3) Have no more than 100 shareholders (4) Have only one class of stock (5) not be a financial institution, insurance company, or domestic international sales corporation. | (1) Corporation must be domestic (conducts its affairs in the U.S.) (2) Shareholders must be U.S. Citizens or resident aliens and shareholders cannot be partnerships or corporations (3) Have no more than 100 shareholders (4) Have only one class of stock (5) not be a financial institution, insurance company, or domestic international sales corporation. |
| *Contrary to what most entrepreneurs have been told, an S corporation (also known as "S-Corp") is not a business entity, rather it is an election that is made by an LLC or C corporation for tax treatment purposes after the LLC or C corporation has been formed. As part of our LLC and C corporation business formation process, you'll have the opportunity to make the S-Corp election. (Don't worry, we'll help you file this paperwork too!) Not sure if your LLC or C corporation should make the S-Corp election? You'll have up to 75 days to decide once your business is formed so you don't have to make the decision during the business formation process. If you would like to read more about making the S-Corp election, click on the "Learning Library" button above. If you're ready to file your business, click "Start Filing". | |||||