When you own a business, you have to make decisions regarding what type of ownership structure you will use. The three most popular business structures are C Corporations, S Corporations, Limited Liability Companies (LLCs), and Partnerships. Each of the structures has different tax implications, so it is important to understand which is the most suitable for your business.
C Corporations are the most common type of business. They are separate from their owners and are subject to double taxation when profits are distributed—meaning both the corporation and the shareholders are taxed on the profits and dividends. S Corporations pass the business profits through to their shareholders, who may be liable for income tax, depending on the amount of income earned. Lastly, LLCs and Partnerships both provide limited liability protection and are generally only taxed once on their profits and have more flexibility in their organizational design. Ultimately, the tax implications of each ownership structure varies, and the best one to choose depends on unique needs.