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LLC
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S CORPORATION
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C CORPORATION
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Liability protection
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Generally limited to
committed capital
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Generally limited to
contributed capital
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Generally limited to
contributed capital
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Company control
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Varies depending on the operating agreement
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Voting and non-voting shares allowed
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Voting and non-voting shares allowed
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Distributions — flexibility
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Can vary by operating agreement
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Distributions must be ratable based on stock ownership
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Can vary by class of stock
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Top tax rate= Federal |
37 percent-Individual |
37 percent-Individual (unless the S corporation is subject to built-in gains tax)
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21 percent and tax on any dividends distributed
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Basis
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Partner has basis in equity plus partner’s share of debt Contributions/ distributions and income/loss affect basis
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Owner has basis in equity plus direct shareholder loans to corporation.
Contributions/ distributions and income/loss affect basis
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Cost of stock purchased
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Adjustment of inside basis to equal outside basis
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§754 election or mandatory basis adjustment
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None, however,
flow-through gains will increase outside basis.
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None
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Allocation of income/ losses
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Partner’s share of income/loss is flexible under §704(b)
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Shareholder’s share of losses is determined on per-share, per-day basis.
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None
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Fringe benefits to owners
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Taxable
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Taxable for >2 percent shareholders
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Fringe benefits not included in
shareholder income
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Employee equity compensation
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Profits interest generally not taxable
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Bargain element generally taxable to employee and deductible to corporation
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Bargain element generally taxable to employee and deductible to corporation
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20-percent qualified business deduction (if business meets criteria)
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Yes
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Yes
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No
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Self-employment (SE) tax/net investment income tax (NII)
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SE to owners who materially participate but generally no NII
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Generally no SE/NII tax for shareholder who received reasonable compensation and
materially participates
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Salary subject to FICA & Medicare. All dividends subject to NII.
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Sale of interest
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Salary subject to FICA & Medicare. All dividends subject to NII.
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Capital gain
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Capital gain
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Qualified small business stock exclusion (§1202)
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No
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No
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Yes
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Treatment of redemption proceeds
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A mixture of ordinary income and capital gain
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Capital gain
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Capital gain
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Estate planning
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Flexible
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Very limited
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Flexible
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