C corporations are the most common corporate structure and are an independent legal entity owned by shareholders. The corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs. This provides an advantage to the shareholders, as their personal assets are not on the line.
Due to the fact that the corporation is a separate entity, it is also viewed as an individual taxpayer by the (IRS). As a result, corporations are subject to double taxation, in that the profits are taxed once on the corporate level and a second time when they are distributed as dividends to the shareholders.
The shareholders of a corporation may elect for the corporation to be taxed under IRC Subchapter S, if the corporation meets certain qualifications to become an S corporation. The potential advantage is that S corporation’s income, losses, and tax credits are passed through to the corporation’s shareholders without being taxed at the corporate level. Thus double taxation is eliminated.
PROFESSIONAL CORPORATIONS (PC)
A professional corporation is a corporation created under state law to practice a particular profession in corporate form. The purpose of the corporation is to render professional services in a single profession, such as accounting, architecture, dentistry, law, medicine, etc.
LIMITED LIABILITY COMPANIES (LLC)
An LLC combines the limited liability attribute of a corporation with the favorable taxation treatment and structural flexibility attributes of a partnership. Depending on the desires of the members of the LLC, the LLC may be structured to resemble a sole proprietorship, a partnership, or a corporation.
GENERAL PARTNERSHIPS (LP)
A general partnership must have two or more persons carrying on as co-owners of a business for profit. The business is not a separately taxed entity; rather, it is a channel where the profit or loss flows through to the partners. The partners report their share of the partnership profit or loss on their individual income tax returns.
LIMITED PARTNERSHIPS (LP)
A limited partnership is similar to a general partnership, with the except that in addition to one or more general partners, there are one or more limited partners. The general partner has management authority and carries the general liability while the limited partner is a passive investor who has no management authority.
A sole proprietorship is the simplest form of a business organization, in which an individual engages in business personally and without either co-owners or the use of an entity such as a corporation. A sole proprietor is personally liable for the debts and obligations of the business.