See sole proprietorship, limited liability corporation, and C corporation.
An S corporation is a type of incorporation for a company which "fits" for companies with 100 shareholders or less. In this case, a company's profits aren't taxed twice when paying out profits to shareholders.
Example:
Kendra's Kazoo Factory has 50 shareholders and made $5M in profits, pre-tax, last year. Normally, her company would pay $1.5M in taxes and then only have $3.5M to pass through to the 50 employees. Those employees then pay their personal individual income tax on that $3.5M. Figure it's about 40%, and the $3.5M turns into $2M after taxes. So we've taken $5M in profits and turned it into $2M by giving over $3M to the Taxman.
But in an S Corporation type of incorporation, there's no corporate slice of $1.5M meat—instead, all $5M is passed through to the 50 employees who then pay their 40%-ish tax, and the $5M turns into $3M instead of $2M.
Definitely a better deal for the people who worked hard to earn that money.
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Finance: What is an LLC?4 Views
finance a la shmoop. what is an LLC? LLC no that's not a rapper, that's a limited
liability company or look as professionals in the business pronounce
it. well why do you want one? because limiting your liability is a [man explains]
good thing if you're the one potentially liable for that stooge who slips on a
banana peel in your lobby waiting area and then Sue's you and wins. if you start
building your own company as an individual and not as an LLC and you get
sued for whatever, and you lose well you could lose everything you own.
that is the lawyers will come after your house your car your poodle your signed
Mila Kunis photograph collection, and legally well they'll be entitled to take
all of it. if you have existed under the legal structure of an LLC however, well [legal structures pictured]
the most you can be liable for is the assets of the business itself. yes
they'll take the company computer the remaining 17 months of lease on the
company building, and all your staplers and posted thingies but legally they
won't be able to go after your home your car your poodle or your autograph
collection. Mila is safe whew. so LLC's are a good thing they cost only a few
hundred bucks to set up these days, hi LegalZoom. so before you start up a lava
lamp company of your own think about setting up an LLC first. Mila and your [lava lamps in a row]
poodle gregory will thank you for it.
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What is a corporation? Corporations are legal bodies. Bodies exist in various forms: LLC (Limited Liability Corporation), S-Corporation (now with p...