- This is an election for corporations under section S of the tax code.
- The S corporation has all of the legal characteristics of the corporation.
- The exception is that S-Corp shareholders report corporate income or losses (commensurate with their ownership percentage) on their personal income tax returns.
- Basically, the shareholders elect to be treated as a Pship for tax purposes, with a few outstanding differences.
- The S-Corporation must file an information return, even though the entity itself does not pay taxes.
Limits on the S-Corp
o No more than 100 shareholders.
o Each shareholder must elect the pass-through taxation.
o Only individuals can be members.
Limited Liability Organizations
o Created through filing the articles of organization with the secretary of state.
o Organizers form the entity (rather than incorporators).
o The name LLC must be include dint eh name.
o Foreign LLCs (LLCs from other states) must register with the state in order to carry on business within that state.
o Must file an annual report in any state in which it operates.
o Owners of the LLC are known as members.
o An LLC can have other entities as members.
o Transfer of interest is restricted, or as defined in the operating agreement.
o If a member dies or withdraws, the entity is dissolved unless the articles of incorporation state otherwise or the members agree to carry on business within 90 days of the occurrence.
o The members of the LLC control the LLC, unless the operating agreement establishes managers for the LLC.
o In either case, the majority of member interest controls the LLC.
o Like a partnership, the members of the LLC share profits and losses equally unless there is an agreement in place otherwise.
o The minority members have the right to bring a derivative suit on behalf of the LLC or to sell his/her interest to the other members of the LLC.
o Members act as agents of the LLC or Managers appointed by the members act as agents of the business.
o These agents subject the LLC to potential liability, but the other LLC Members are not personally liable for the acts of the agent.
o They may have liability to other LLC members for unauthorized acts.
o LLC are non-taxable entities, much like a partnership.
o The taxable income flows through to the individuals.
o The members report LLC income on their individual income tax statement.