Business Law Topics: S Corporations

In general, consider the following guidelines:

1. If you are the only owner, strongly consider a single member LLC because the entity can be formed by filing a one-page form, there are no corporate formalities and no corporate or partnership tax return is necessary. Your taxes will be filed by Schedule C to your personal form 1040.
2. If your business looks and acts like a partnership (i.e., a group of consultants), then the LLC may be a good fit because, in its simplest form, it is essentially a partnership. You will file a partnership tax return.
   

A subchapter S election with the IRS turns a qualifying corporation (subchapter C Corporation) into a pass-through entity, which means that the corporation pays no federal corporate income tax. Instead, each year, shareholders pay tax on the corporation’s profit. Partnerships are also pass-through entities. The weakness of the partnership entity is that partners share in the businesses liabilities. A Limited Liability Company is a partnership with the limited liability of a corporation.