Learning Center

Which Type: C-Corp, Or S-Corp or LLC?

C-Corporation (C-Corp)

A C-Corporation is the traditional and most common type of corporation. Forming a C-Corporation allows the company to have an unlimited number of shareholders. This is beneficial to companies which will require many investors, as well as companies who envision offering stock publicly. An inherent benefit of all Corporations and LLCs is that they shield their shareholders from personal liability arising from business debts and business lawsuits.

Ease of Transfer

A favorable aspect of the C-Corporation is the simplicity by which its stock can be sold or otherwise transferred. Transfers of C-Corporation stock have very few limitations. Furthermore, if a company will offer stock publicly, the C-Corporation is the only option. S-Corporations and LLCs are not permitted to offer ownership through public offerings.

Familiarity

Familiarity with the C-Corporation often drives business owners to choose the corporation over the LLC. While an LLC is a relatively new form, the C-corporation is the traditional business type with which most business owners have previously dealt with on some level. This familiarity often leads owners to make the comfortable choice, and stick with what they know.

Low Cost

A further consideration is the state filing fee. In most states, the fee to form a corporation is slightly less than the fee to form an LLC. Use our "Quick Quote" tool to see the fees charged by your chosen state.

Disadvantage

The primary disadvantage of the C-Corporation is that it is subject to “double taxation.” This means that the company's profits are initially taxed at the corporate level, and then taxed again at the individual level when distributions are made to the shareholders.

S-Corporation

Since its creation, the S-Corporation has increasingly become the preferred form for many small businesses. The S-Corporation is similar in structure to that of a C-Corporation, but must meet a few further requirements. In fact, an S-Corporation is initially formed as a C-Corporation by filing the articles of incorporation with the Secretary of State. The C-Corporation can then become an S-Corporation when an extra step is taken by filing with the IRS.

Avoid "Double Tax"

The primary benefit of an S-Corporation is that it allows the shareholders to receive profits free of taxation at the corporate level. The profits will only be taxed at the individual level, thereby avoiding the "double tax" that C-Corporation shareholders are subject to. (C-Corporations are taxed at the corporate and individual level).

However, not all C-Corporations are able to take advantage of the S-Corporation status. A corporation is only eligible for the S-Corporation election if it meets the following list of ownership requirements:

The company must have no more than 100 shareholders (a husband and wife qualify as one shareholder).

All shareholders in the company must be individuals and not other corporations or LLCs (estates, some exempt organizations and certain trusts qualify as shareholders).

No shareholders can be non-resident aliens.

There can only be one class of stock in the company (this limitation disregards differences in voting rights).

The company making the election cannot be a bank or thrift institution, an insurance company, or a domestic international sales corporation (DISC).

Each shareholder must consent to the S-Corporation tax status (as explained in column K of IRS form 2553).

No more than 25% of the company's gross corporate income may be derived from passive income.

Limited Liability Company (LLC) - with comparison of LLC to S-Corporation

Today, many businesses are forming as a Limited Liability Company (LLC) and are finding that an LLC offers the "best of both worlds" of corporate forms. An LLC allows for pass-through taxation (see "Tax Advantage" below), thereby avoiding the "double tax" of a C-Corporation, yet also affords its owners the personal liability protection of a corporation.

Tax Advantage

The popularity of the LLC is primarily based on the Tax Advantage. An LLC operates in most ways as a corporation, yet the distributions to its "members" (shareholders) are not subject to taxation at the corporate level. Instead, the distributions are "passed through" the corporate level and are taxed only at the individual level. Therefore, the LLC avoids "double taxation."

Personal Liability Protection

Corporations and LLCs are separate entities from their owners. Since the two are separate, the personal assets of the owners (such as their personal residences, and personal bank accounts) are not reachable by business creditors.

LLC or S-Corporation?

As mentioned above, a C-Corporation that satisfies certain requirements can choose to file as an S-Corporation. The primary benefit of an S-Corporation is that it allows the shareholders to receive profits without taxation at the corporate level. Instead, the profits will only be taxed at the individual level, thereby avoiding the “double tax” that shareholders are usually subject to.

If an S-Corporation is also not subject to the "double tax," are there situations where an LLC is still preferable?

An advantage of an LLC is that the formation and ownership requirements are less stringent. Usually, an S-Corporation can issue only one class of stock, while an LLC may offer a variety of classes. The S-Corporation also limits the number of shareholders to one hundred or less, and prohibits non-resident aliens from possessing ownership in the company. Further, S-Corporation shareholders cannot be other corporations, LLCs, or partnerships. An LLC has no such limits to ownership.

The LLC also offers an advantage in management flexibility. The LLC can be "member-managed," meaning that it would be managed directly by the shareholders. Or the owners of the LLC can agree to have the business “manager-managed,” meaning that the management can be structured and delegated from the owners to managers.

Why not Choose an LLC?

Although the LLC form is preferable in many ways, a C-corp or S-corp may still be the best form in many circumstances. The primary reason that a C-corp or S-corp may still be preferable is the simplicity by which the stock can be sold or otherwise transferred. A sale of an ownership interest in an LLC must meet certain requirements, while a sale of corporate stock virtually has no limitations. As mentioned above, other favorable aspects of the corporation include the public's familiarity with the form and lower state filing fees. Finally, the "pass through" tax advantage may be less beneficial to businesses that are small enough to take advantage of the 15% and 25% tax rates.

Note that although every state allows corporations to have a single shareholder, a small minority of states require that an LLC have more than one Member. The rest of the states allow a single Member LLC.

How long before my company is officially incorporated with the state (how long should the process take)?

How long before my company is officially incorporated with the state (how long should the process take)?

1. Complete our online Application - 10 minutes
2. Document preparation and state filing - timing varies by state (shown below)
Approximate timing for each state to process the Articles of Incorporation:
(Please note that this information is estimated and may change without notice.)
Alabama: 15-20 business days
Alaska: 3 to 4 business days
Arizona: 12 to 23 days; about 3 weeks if expedited
Arkansas: 3 to 5 business days
California: about 4 weeks; about 3 weeks if expedited
Colorado: 3 to 4 business days
Connecticut: 15 to 20 business days; about a week if expedited
Delaware: 4 to 6 weeks; about a week if expedited
District of Columbia: 15 to 20 business days; about 5 business days if expedited
Florida: 3 to 4 business days
Georgia: 12-15 business days; About 3 to 5 business days if expedited
Hawaii: 3 to 4 days
Idaho: 5-7 business days
Illinois: 20 to 25 business days; 3 business days if expedited
Indiana: 3 to 4 business days
Iowa: 15 to 20 business days
Kansas: 3 to 4 days
Kentucky: 10 to 12 business days
Louisiana: 5 to 7 business days
Maine: 15 to 20 business days; 1 week if expedited
Maryland: 12 weeks; about 3 weeks if expedited
Massachusetts: 5 to 7 days
Michigan: about 5 business days; about 4 business days if expedited
Minnesota: 10 to 15 business days
Mississippi: 15 to 20 business days
Missouri: 8-12 business days
Montana: 20 to 25 business days; about 8 business days if expedited
Nebraska: 15 to 20 business days
Nevada:about 3 days; about a week if expedited
New Hampshire: about 2 days
New Jersey: 8 to 10 weeks
New Mexico: normally 3 to 5 business days
New York: 10 to 15 business days; about 3 days if expedited
North Carolina: 15 to 20 business days; about a week if expedited
North Dakota: 15 to 20 business days
Ohio: 3 to 4 business days
Oklahoma: 5 to 7 business days
Oregon: 3 to 4 business days
Pennsylvania: 15 to 20 business days
Rhode Island: 15 to 20 business days
South Carolina: 2 to 3 business days
South Dakota: 3 to 4 business days
Tennessee: 15 to 20 business days
Texas: 3 - 5 business days
Utah: 15 to 20 business days
Vermont: 10 to 15 business days
Virginia:7 to 10 business days
Washington: 15 to 20 business days
West Virginia:
Wisconsin: 15 to 20 business days; about 3 business days if expedited
Wyoming:

By far, most of the time involved in processing your Articles will be the time it takes for the state of incorporation to complete its work.
Immediately after you complete the online form, we will audit the information you have submitted and begin preparation of your articles of incorporation (or articles of organization). Usually, we will be able to send the Articles to their destination the following business day. When the state approves and returns the Articles of Incorporation to our office, we will notify you of the approval and immediately ship the Articles, along with other documents and information to your company.

The state's process is not within our control. The amount of time an individual state takes can vary widely depending on such external factors as the time of year, the state of the economy, the particular state's backlog compared to its staffing, etc. Typically it can take from two to three weeks (or sometimes even twice that long). Regardless of whom you incorporate with, the time the state takes to process the Articles will be the same.

We at Direct Incorporation will do our part to minimize the amount of time the process takes by ensuring that your documents are processed and sent out within two business days of receiving your online information.

How do I comply with corporate formalities and deadlines?

The Business Compliance Program (BCP) keeps you informed and up to date with your corporate responsibilities so that you can focus on growing your business. The BCP assists you in keeping your company active and in compliance by informing you in the three areas of corporate responsibility:
1. Secretary of State's Corporate/LLC maintenance requirements,
2. Internal corporate formality requirements, and
3. Ongoing IRS corporate tax obligations.

In addition to keeping you informed of your corporate responsibilities, the BCP provides an interactive software program to walk you through your corporate formality meetings, such as your shareholder/director or member/manager meetings. The meeting information data will also be stored on your Compliance Account.

Where should I incorporate?

Your state
Incorporating in your home state is usually the preferred choice because it is the least costly and least complicated. For example, if you incorporate in a state other than your state of operation you may have to qualify to do business in your home state as a "foreign corporation." Also, if you incorporate and operate in different states you may have to file annual reports in both states and may have to pay income and franchise tax in both states. Incorporating in your state of operation will simplify procedures and cut back on these redundant costs.
Finally, incorporating in your state of operation will allow you, or someone closely associated with your company, to serve as your company's resident agent. Naming yourself or someone associated with your company as resident agent ensures that you will personally receive important documents without wasted time and money.

The Delaware Option
Delaware has the longstanding reputation as the best state in which to incorporate. Thousands of start-up companies make this choice every year, despite the fact that they operate completely or partially in states other than Delaware. The upfront benefits of incorporating in Delaware are applicable to both large and small businesses. For example, Delaware offers low incorporation and franchise fees. Additionally, companies which conduct all business outside of Delaware are not subject to Delaware state income tax. Management Flexibility is also an advantage, as Delaware allows a corporation with fewer than 30 shareholders to be managed directly by the shareholders.
Although Delaware incorporation may be beneficial to any size company, it is the larger companies that have the most to gain. For instance, Delaware incorporation is advantageous to companies who intend to offer their shares to the public. For this reason the majority of companies on the New York Stock Exchange, as well as 58% of Fortune 500 companies, are incorporated in Delaware.
Also, if you choose to incorporate in Delaware, you may have to "qualify" to do business in other states that you operate in. This means that you will probably have to qualify to do business in your business' home state. Further, you may have to file annual reports in both Delaware and your home state of operation, and will likely be subject to franchise taxes in both states. The cost and complexity of the dual reporting requirements are more easily absorbed by larger companies.
If you choose to incorporate in Delaware but do not have a physical street address within the state, Direct Incorporation can provide you with dependable Delaware resident agent services.

The Nevada Option
In recent years, Nevada has gained recognition for its favorable corporate laws. As such, a growing number of out of state businesses choose to incorporate in Nevada. The tax savings of incorporating in Nevada is one advantage. Nevada does not tax corporate profits, there is no state personal income tax, and there is also no franchise tax.
Shareholders of a Nevada corporation also enjoy the benefit of complete privacy. In contrast to most states, Nevada has minimal reporting and disclosure requirements. For example, Nevada does not require shareholders to be listed on public record, as most states do.
However, like Delaware incorporation, larger corporations have the most to gain from incorporating in Nevada. In fact, for smaller corporations, the disadvantages of Nevada incorporation may outweigh the benefits. For example, if you choose to incorporate in Nevada and mainly operate in another state, you may have to "qualify" to do business in that other state. Furthermore, all states have annual reporting requirements, and although Nevada's requirements are minimal, it is generally less complicated to deal with the reporting requirements of just one state- your state of operation- rather than two.
If you choose to incorporate in Nevada but do not have a physical street address within the state, Direct Incorporation can provide you with dependable Nevada resident agent services.

Why incorporation is necessary?

Incorporating is essential to the success of any business. The process of incorporating entails the preparation of certain documents, including a document referred to as the "Articles of Incorporation," and filing the documents with the Secretary of State. (For an LLC, the main document used to incorporate is referred to as the “Articles of Organization.”)
Below is an explanation of why it is necessary for every business to incorporate. The primary advantages of incorporation are discussed, as are the risks involved in operating an unincorporated business.

Shield yourself from liability
The most important reason to incorporate your business is to protect yourself from business liabilities. If you are operating an unincorporated business, its creditors may be able to reach your personal assets. Assets such as your personal residence and personal bank account can be used to pay business debts or to satisfy a lawsuit against your business. If you incorporate, business creditors cannot reach your personal assets, as an incorporated business and its owners are separate entities.
Establish perpetual existence and transfer of ownership
Perpetual existence is an advantageous aspect of an incorporated business. Perpetual existence means that the life and continuation of the business will not be affected by the withdrawal or death of one of the owners. An unincorporated business's existence, as well as its operation, is generally disrupted by the withdrawal or death of one of the owners. Subtract this risk from your business by incorporating.
Similarly, the ownership interest in an unincorporated business may be very difficult to transfer. If the business is incorporated the shareholders can easily transfer their interest by sale or gift.

Gain tax advantages
If you incorporate your business, there are tax deductions for a wide variety of operating costs which will substantially cut back your company's overall tax liability. These deductions may include the cost of materials/production, employee wages, the cost of insurance, the cost of retirement plans, as well as business travel and entertainment expenses.
Enhance the company's image
Another essential reason to incorporate your business is that it adds credibility to its operation. The perception of a business is improved by its incorporation and use of "Inc.," "Co.," or "LLC" following the name of the business. Customers are more likely to trust and deal with a business that has this positive image. More importantly, the business will be more attractive to banks and investors if and when the business seeks outside financing.

Improve ability to manage
The decision-making authority of an incorporated business is centralized, which usually means that the shareholders have vested the authority in a Board of Directors. The Board of Directors can delegate this authority to the company's officers. In an unincorporated business, the power structure and decision-making authority may not be defined and may be subject to manipulation by a co-owner or employee. This lack of structure will substantially affect the ability of the business to operate. Subtract this risk from your business by incorporating and thereby centralizing its management structure.
Incorporate online because it's easy
Incorporating online will take you about ten minutes and will cost you a fraction of what it would cost if you used a lawyer. We will walk you through the process, and enable you to effectively incorporate your business based on your business's specific needs.

What are the state fees to incorporate?

Alabama - $183 Corporation / $183 LLC
Alaska - $250 Corporation / $250 LLC
Arizona - $60 Corporation / $50 LLC
Arkansas - $50 Corporation / $50 LLC
California - $100 Corporation / $75 LLC
Colorado - $50 Corporation / $50 LLC
Connecticut - $290 Corporation / $160 LLC
Delaware - $89 Corporation / $90 LLC
District of Columbia - $220 Corporation / $220 LLC
Florida - $79 Corporation / $130 LLC
Georgia - $100 Corporation / $100 LLC
Hawaii - $51 Corporation / $51 LLC
Idaho - $101 Corporation / $101 LLC
Illinois - $179 Corporation / $154 LLC
Indiana - $97 Corporation / $97 LLC
Iowa - $50 Corporation / $50 LLC
Kansas - $85 Corporation / $165 LLC
Kentucky - $50 Corporation / $40 LLC
Louisiana - $85 Corporation / $110 LLC
Maine - $145 Corporation / $175 LLC
Maryland - $168 Corporation / $120 LLC
Massachusetts - $265 Corporation / $520 LLC
Michigan - $155 Corporation / $155 LLC
Minnesota - $58 Corporation / $51 LLC
Mississippi - $70 Corporation / $70 LLC
Missouri - $52 Corporation / $52 LLC
Montana - $129 Corporation / $129 LLC
Nebraska - $102 Corporation / $102 LLC
Nevada - $135 Corporation / $210 LLC
New Hampshire - $129 Corporation / $129 LLC
New Jersey - $100 Corporation / $50 LLC
New Mexico - $725 Corporation / $425 LLC
New York - $99 Corporation / $99 LLC
North Carolina - $100 Corporation / $135 LLC
North Dakota - $67 Corporation / $108 LLC
Ohio - $105 Corporation / $105 LLC
Oklahoma - $125 Corporation / $125 LLC
Oregon - $238 Corporation / $156 LLC
Pennsylvania - $235 Corporation / $132 LLC
Rhode Island - $150 Corporation / $150 LLC
South Carolina - $104 Corporation / $307 LLC
South Dakota - $300 Corporation / $300 LLC
Tennessee - $74 Corporation / $74 LLC
Texas - $79 Corporation / $104 LLC
Utah - $125 Corporation / $125 LLC
Vermont - $100 Corporation / $130 LLC
Virginia - $200 Corporation / $200 LLC
Washington - $50 Corporation / $100 LLC
West Virginia - $0 Corporation / $0 LLC
Wisconsin - $102 Corporation / $102 LLC
Wyoming - $0 Corporation / $0 LLCgs.