Difference between Us Business Entities
[business c-corp s-corp tax partnership finance sole-proprietorship llc This is my reading note for C Corp vs. S Corp, Partnership, Proprietorship, and LLC: What Is the Best Business Entity?. You may consider to create a business probably to save some tax. There are different type of busniess entities in US and you should understand the differences between them before decide which type to choose.
| Item | Sole proprietorship | Partnership | S Corporation | C Corporation |
|---|---|---|---|---|
| Pass-Through | Yes | Yes | Yes | No |
| Shareholder/owners | 1 | <=20 | <=100 | No limit. |
| Shareholder type | N.A. | people or other partnership | Generally US citizen or permanant residents only | Foreigener or foreigen entities (e.g., companies) are allowed |
| Income distribution | N.A. | could be different to ownership | must be in same propotion as ownership | could be different to ownership |
| Shareholder class | N.A. | N.A. | One class only. | Different classes are allowed, e.g., A/B stock used by Google |
| Tax filing for business | No | Yes, K1 | Yes, K1 | Yes |
| Tax on business | 0% | 0% | 0% | 21.0% as of now |
| Tax on owner | tax as part of your income tax | tax as part of your income tax | tax as part of your income tax | 23.8% as of now |
| Payroll | No if no employee | No if no employee other than owner | Required even if no employee other than owner | Required even if no employee other than owner |
| Protection of owner | No, unless LLC | No, unless LLC | No, unless LLC | Yes. |
| Complexity of maintainance | Low | Low to mid | High | High |
| Cost of maintainance | Low | Low to mid | High | High |
Pass Through
Pass-through tax treatment means that the taxes of a business are literally “passed through” to the tax returns of the individuals who own the business. The tax deduction isn’t taken by the business, but it’s taken by the individual taxpayer(s) who own the business.
These business entities are not subject to double taxation—once as the business earns income and again at the owners’ level—as are corporations.
Limited Liability Company
Limited Liability Company or LLC is a business structure in the United States whereby the owners are not personally liable for the company’s debts or liabilities. An LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation (as long as they would otherwise qualify for such tax treatment), providing for a great deal of flexibility.