A C Corporation is a business in which the owners (shareholders) are taxed separately from the entity. The business is taxed on its profits, any distributions or salaries paid to the owners are then subject to standard income tax. While the “double-taxation” is a negative outcome, C Corps have the ability to reinvest profits back into the company at the lower corporate tax rate.
S Corporations are structured similarly to the C Corp but avoid double taxation. To qualify the company must have fewer than 100 shareholders, among other stipulations. The S Corp is able to pass company income, losses, deductions, and credits on to its shareholders to be factored into their individual tax calculations.
In this situation, as far as the IRS is concerned, the owner is the business. These are the simplest to set up or take apart, making them popular among contractors, and consultants. The owner pays personal income tax on profits earned from the business, and bears all of the risk an liability on a personal basis.
Limited Partnerships are very similar to a sole proprietorship. In this structure multiple owners receive the business profits as personal income tax, and are liable only to the amount they have invested in the company. This is in contrast to the also popular General Partnership, where all owners bear responsibility for the company.
Limited Liability Company (LLC)
This structure blends the properties of a corporation and a partnership or sole proprietorship. Owners are isolated from liability but are allowed flow through of profits and are taxed as such. Unlike a corporation, an LLC is dissolved upon death or bankruptcy, and unlike a partnership or sole proprietorship the assets of the company are held separately from that of the owners until they are distributed to them.