By Jason Watson (Google+)
They are all corporations, yet there are some subtle differences. Technically there are only two corporations, limit liability corporations (LLCs) and corporations (C-Corp). An LLC is NOT treated as a separate entity in the eyes of the State, while a corporation IS considered a separate entity and is further required to have articles of incorporation, directors, meetings with minutes, officers, etc. However, from a tax consequence perspective they can be treated the same or differently as an election- please read on.
The C-Corp is traditionally used for organizations that want outside investors, pay dividends, need easy ownership transfers (shares), etc. They are subject to what accountants refer to as double taxation- the corporation’s income is taxed, and then the shareholders (owners) are personally taxed when dividends are paid. This is undesirable for most small businesses, therefore C-Corp status is reserved for larger organizations.
Limited Liability Corporations (LLCs) are the lite version of corporations. All the taste without the calories so-to-speak. LLCs do not have as much red tape as regular corporations. For example LLCs have loose ownership restrictions, most states do not require meetings and minutes, and are generally easier to form and maintain.
S-Corps are technically corporations that fall under Subchapter S of the laws and code governing corporations, hence their name S-Corp. However, both a C-Corp and an LLC can elect to be treated as a S-Corp for TAXATION purposes. When this occurs, additional rules and procedures must be followed.
Regardless, all corporations and LLCs enjoy some protection from liability.