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A C Corporation is a separate legal entity, set up under state law, that protects the owner’s (shareholders’) assets from creditor claims. Since the C corporation is divided into stock which is held by shareholders, the owners of the company are called shareholders. Shareholders are responsible only to the proportion of shares held by them. Shareholders, meaning owners of the corporation, are typically not personally liable for business debts and liabilities. This protection is also extended to directors, employees and other officers of the company. At the federal level, a for-profit corporation is classified as a C Corporation or an S Corporation for tax purposes. In a C Corporation, income and expenses are taxed to the corporation and not to the owners. A C Corporation is managed by a board of directors. State law governs the minimum numbers of directors that are required on the board and other compliance and tax related requirements at the state level. Incorporating a corporation will automatically give the entity the status of a C Corporation. Corporations are useful for small businesses that seek to attract investors because it provides limited liability protection. Moreover, if you are not an owner and just an investor, you will be taxed only on the dividends. Although, you would require an in-state street address for the state to forward official legal and tax correspondence including service of process, known as the registered agent address, there are no citizenship or residence requirements for ownership of a Corporation. Many foreign business owners use a C Corporation structure because its profits and losses do not flow through to its owners and therefore, in some cases, foreign owners will not need to file U.S. personal income tax returns.

An S Corporation is a tax status applicable to LLCs and corporations (C Corporation). In order to achieve this tax structure, Form 2553, Election by a Small Business Corporation, is filed with the Internal Revenue Service (IRS), as provided under the federal tax law. The benefit in an S Corporation is that the profits, losses, and other tax items pass through the corporation to the owners and are reported on their personal income tax return. The company is not taxed at the corporate level. This means that the business itself will not be taxed and the owner(s) will only be subjected to income tax on the business’s net income. An S Corporation also provides the flexibility to set salaries for employees/owners to be “reasonable salary.” Most importantly, you must have no more than 100 shareholders to qualify as an S Corporation. The IRS also defines “eligible shareholders”. As per federal law, shareholders must be U.S. citizens or legal residents.

An LLC is a formal business structure owned by its investors. An LLC is a great way to protect investors’ personal assets in the unfortunate event that the company suffers losses. The tax benefits and more flexibility on important matters such as accounting, management, and profit sharing in an LLC also make it worth considering. In terms of management, unlike corporations, which are required to hold annual meetings of directors and shareholders and keep detailed documents and records of all corporate meetings and major business decisions, LLCs do not require such formalities. You could choose your LLC to be taxed as a corporation or as a pass-through entity. An LLC that is taxed as a corporation, pays income tax at company level and the owners pay personal income taxes as well. If your LLC is taxed as a pass-through entity, the owners of the company pay personal income taxes and do not have to file a separate business tax return. Although, you would require an in-state street address for the state to forward official legal and tax correspondence including service of process, known as the registered agent address, there are no citizenship or residence requirements for ownership of an LLC.