The limited liability company or LLC is not a partnership or a corporation. An LLC is a distinct type of business that offers an alternative to partnerships and corporations, by combining the corporate advantages of limited liability with the partnership advantage of pass-through taxation.
Limited Liability Company
A corporation is a separate legal and tax entity from the owners. This type of general, for-profit corporation is referred to as a “C” corporation (referring to Chapter C in the IRS code). To be incorporated an Incorporator must draft legal documents and, file the documents with the appropriate government agency and pay the required fees and taxes. A corporation is owned by shareholders and is managed and controlled by the board of directors who elect the president and determine the policies and actions to be taken by the corporation. In order to maintain corporate status (included limited liability and favorable taxation) certain simple formalities must be observed in order to keep the corporate shield in tact. These formalities include, but are not limited to; annual meeting of the board of directors, the issuing of stock, keeping of corporate minutes and the appointing of corporate officers.
An “S” corporation begins as a “C” corporation. After the initial filing an additional form (form 2553) is filed with the IRS to change to “S” corporation status (referring to Chapter S in the IRS code). There may be additional state filings required. Once this process is complete, the corporation is taxed like a partnership or sole proprietorship rather than as a separate entity. This would result in shareholders’ individual tax returns reflecting income generated or losses accrued by the corporation. Converting to an “S” corporation affects the tax status but does not generally effect the legal protection offered by the corporation.
Often a reasonably small salary is paid and a large Schedule K-1 distribution is paid to the employee/owner to help lower Social Security and Medicare taxe
Non Profit Corporation
A non-profit organization is an organization registered with the IRS on form 1023 declaring federal and state tax exemption under the Federal Tax code Section 501(c)(3). A non-profit organization is NOT able to issue shares and is NOT able to pay dividends. When a non-profit organization is dissolved any assets must be distributed to other non-profit organizations.