Issue
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C Corporation
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S Corporation
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LLC
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Restrictions on number or owners.
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Most states allow one person corporations; Some require two or more share holders
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Same as C Corporation, but no more then 35 shareholders permitted
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At least two members
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Who makes management decisions?
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Board of Directors
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Same as C Corporation
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Ordinarily members; or managers if manager-managed LLC
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Who may legally obligate?
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Directors of officers
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Same as C Corporation
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Ordinarily members; or managers if manager-managed LLC
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Limits of transfer of ownership interests business?
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Transfer of stock may be limited under securities law or restrictions in Articles Of Bylaws
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Same as C corporation but transfers limited to persons and entities that qualify as S corporation shareholders
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Consent of non-transferring members usually required
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Source of start-up funds
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Initial Shareholders (cannot invest with promise to perform services or contribute in the future)
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Same as C corporation but cannot issue different classes of stock with different financial provisions
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Members (may usually invest with promise to perform services or contribute cash in the future.)
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Ease of conversion to another business form
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May change to S corporation by filing simple tax election; change to LLC can involve tax cost and legal complexity
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Generally same as C corporation - may terminate S tax status to become C corporation but cannot reelect S status for five years after
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May change to general or limited partnership or corporation; legal paperwork involved
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How business profits are taxed
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Split up and taxed at corporate rates and individual tax rates of shareholders
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Individual tax rate of shareholders
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Individual tax rates of members as long as LLC meets IRS rules (has no more then two corporate characteristics)
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Tax-deductible fringe benefits available to owners who work in business
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Tax- deductible fringe benefits for employee shareholders; may fully deduct medical insurance premiums and reimburse employees' medical expenses
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Same as general partnership, but employee-shareholders owing 2% or more of stock are restricted from corporate fringe benefits under partnership rules
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Same as general partnership
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Deductibility of business losses
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Corporation may deduct business losses (shareholders may not deduct losses)
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Shareholders may deduct share of corporate losses on individual tax returns, but must comply with special limitations
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Generally members entitled to deduct losses (subject to active-passive investment loss rules that apply to all businesses)
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Tax level when business is sold
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Two levels; shareholders and corporation may be taxed on liquidation if it includes sales on transfer of appreciated property
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Normally taxed at personal tax levels of individual shareholders, but corporate level tax sometimes due if S corporation was formerly a C corporation
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Personal tax levels of individual members.
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