{"id":557,"date":"2017-05-11T04:21:54","date_gmt":"2017-05-11T04:21:54","guid":{"rendered":"http:\/\/digitaltransactions.club\/nvcausa\/?page_id=557"},"modified":"2020-12-30T00:21:01","modified_gmt":"2020-12-30T00:21:01","slug":"choosing-a-structure","status":"publish","type":"page","link":"https:\/\/nvcausa.com\/choosing-a-structure\/","title":{"rendered":"Choosing a Structure"},"content":{"rendered":"\n\n\t<h1>\n\t\t\t\tInner Page Heading\n\t\t\t<\/h1>\n\t\n<h3>CHOOSING<\/h3>\n<ul>\n<li>It is easier to form a C corporation than an S corporation or an LLC. (Simpler is not always but frequently better.) (For an example of what can go wrong with an S corporation election, see <a href=\"http:\/\/www.irs.gov\/irb\/2004-23_IRB\/ar11.html\" target=\"_blank\" rel=\"noopener\">Rev. Proc. 2004-35<\/a>.)<\/li>\n<li>You can issue qualified small business stock and potentially qualify for the qualified small business stock benefit under Section 1202 of the Internal Revenue Code and the rollover benefit under <a href=\"http:\/\/www.law.cornell.edu\/uscode\/html\/uscode26\/usc_sec_26_00001045----000-.html\" target=\"_blank\" rel=\"noopener\">Section 1045 of the Internal Revenue Code<\/a> [For investments in C corporations that are qualified small businesses under Section 1202 of the IRC before the end of 2011, the tax rate after holding the stock for 5 years is Zero&#8211;including a complete AMT exemption (subject to a cap (but a substantial one)).]<\/li>\n<li>You avoid having to issue your owners Forms K-1, subjecting them to federal income tax on the entity&#8217;s income (regardless of whether that income is distributed to them), and potentially subjecting them to state income taxes in the various states in which the entity has income tax nexus.<\/li>\n<li>You avoid having to agree to a cash distribution scheme to cover the taxes of the owners on the entity&#8217;s income taxed to them.<\/li>\n<li>It is easier for a C corporation to engage in an equity or debt financing.<\/li>\n<li>Venture capitalists typically won&#8217;t invest in LLCs and can&#8217;t invest in S corporations.<\/li>\n<li>Only C corporations can go public (generally).<\/li>\n<li>Equity compensation in a C corporation is easier.<\/li>\n<li>C corporations can participate in tax-free reorganizations under the Internal Revenue Code. LLCs taxed as partnerships cannot. What this means is this-if you are operating as an LLC and are offered to be bought out by another company for stock, your receipt of that stock will be taxable to you-even if the stock is not salable and can&#8217;t be sold to generate cash to pay the tax. With corporations, it is possible to be bought out for stock on a tax-deferred basis, and not pay tax on the stock received until you sell it. This is an important exit strategy consideration.<\/li>\n<li>There are potential self employment tax savings over what would be possible with an LLC.<\/li>\n<li>There is no limit on the type or number of shareholders that you can have.<\/li>\n<li>The dreaded &#8220;double tax&#8221; that everyone is afraid of with C corporations rarely ever occurs (there are, of course, exceptions-the cash cow business being one). Most positive exits are 1 layer of tax events-either stock sales or mergers structured so that there is only 1 layer of tax-at the shareholder level.<\/li>\n<li>Although losses cannot be deducted by the shareholders of a C corporation, losses frequently cannot be deducted by non-active members of the company in any event-so the loss pass through benefit to passive investors is frequently in fact not very helpful.<\/li>\n<li>The actual tax benefit of the pass through of any losses may turn out to be substantially less than expected.<\/li>\n<li>The tax accounting complexities associated with maintaining capital accounts in accordance with the Treasury Regulations make LLCs expensive for companies that desire to raise multiple rounds of financing.<\/li>\n<li>LLCs may have to remit tax payments to the IRS on allocations to foreign owners. See <a href=\"http:\/\/www.law.cornell.edu\/uscode\/html\/uscode26\/usc_sec_26_00001446----000-.html\" target=\"_blank\" rel=\"noopener\">IRC Code Section 1446<\/a>.<\/li>\n<\/ul>\n<h3>TYPICAL USES<\/h3>\n<ul>\n<li>Less risk from government audits, compared to a sole proprietor<\/li>\n<li>Limited personal liability for business debts<\/li>\n<li>Deduct the cost of benefits as a business expense<\/li>\n<li>Split corporate profit among owners and the corporation for a possible lower overall tax rate<\/li>\n<li>No limit to the number of shareholders<\/li>\n<li>Can raise additional funds through the sale of stock<\/li>\n<li>Shareholders need not be U.S. citizens or permanent residents<\/li>\n<li>Limited liability protection. Owners are not typically responsible for business debts and liabilities.<\/li>\n<li>Unlimited owners. C corps can have an unlimited number of shareholders.<\/li>\n<li>Easy transfer of ownership. Ownership is easily transferable through the sale of stock.<\/li>\n<li>Unlimited life. When a corporation&#8217;s owner incurs a disabling illness or dies, the corporation does not cease to exist.<\/li>\n<li>Raise capital more easily. Additional capital can be raised by selling shares of stock.<\/li>\n<li>Credibility. Corporations may be perceived as a more professional\/legitimate entity than a sole proprietorship or general partnership.<\/li>\n<li>Lower audit risk. Generally C corporations are audited less frequently than sole proprietorships.<\/li>\n<li>Tax deductible expenses. Business expenses may be tax-deductible.<\/li>\n<li>Self-employment tax savings. A C corporation can offer self-employment tax savings, since owners who work for the business are classified as employees.<\/li>\n<\/ul>\n<h3>TAX COMPLIANCE<\/h3>\n<p>C corporations are taxable at the entity level on their income. Thus, income earned by a C corporation is subject to double taxation: once as corporate income earned by the entity, and a second time, as capital gains or dividend income when realized by the shareholder. A C corporation cannot distribute its assets without recognizing income on the appreciation in those assets. It also cannot liquidate tax-free.<\/p>\n<p>Therefore, while transfers to a C corporation can generally be structured to be tax-free, it is hard to transfer assets out of C corporations without paying tax. C corporations can participate in tax-free reorganizations with other C corporations. However, a sale of assets of the C corporation will be subject to double taxation. If the shareholders sell stock of the C corporation, there will be only a single level of tax; however, the 2 purchaser will take a carryover basis in the C corporation&#8217;s assets and thus will not be able to amortize the purchase price in computing taxable income.<\/p>\n<p>Under the Internal Revenue Code, most publicly traded entities are required to be taxed as C corporations. Thus, public companies have no choice but to be subject to the C corporation rules. With respect to smaller companies, the decision to become a C corporation should be given serious thought because it is hard to reverse.<\/p>\n\t\t<h2>Do you have questions? Let Us help you.<\/h2>\n\t\t<p>For more information about our services and prices, please contact us so we can discuss your specific needs.<\/p>\n\t\t\t<a href=\"https:\/\/nvcausa.com\/contact-us\/\" target=\"_self\" role=\"button\" rel=\"noopener\">\n\t\t\t\t\t\t\tMORE INFORMATION\n\t\t\t\t\t<\/a>\n<h2>\n\t\tShare Our Website On Social Media\n\t<\/h2>\n<a href=\"https:\/\/www.facebook.com\/sharer.php?u=https%3A%2F%2Fnvcausa.com%2F%3Fpage_id%3D557%26fl_builder\" target=\"_blank\" onclick=\"window.open(this.href,&#039;social-share&#039;,&#039;left=20,top=20,width=500,height=500,toolbar=1,resizable=0&#039;);return false;\" rel=\"noopener\">\t\t\t\t\n\t\t<\/a><a href=\"https:\/\/twitter.com\/share?url=https%3A%2F%2Fnvcausa.com%2F%3Fpage_id%3D557%26fl_builder\" target=\"_blank\" onclick=\"window.open(this.href,&#039;social-share&#039;,&#039;left=20,top=20,width=500,height=500,toolbar=1,resizable=0&#039;);return false;\" rel=\"noopener\">\t\t\t\t\n\t\t<\/a><a href=\"https:\/\/www.pinterest.com\/pin\/create\/link\/?url=https%3A%2F%2Fnvcausa.com%2F%3Fpage_id%3D557%26fl_builder&#038;media=\" target=\"_blank\" onclick=\"window.open(this.href,&#039;social-share&#039;,&#039;left=20,top=20,width=500,height=500,toolbar=1,resizable=0&#039;);return false;\" rel=\"noopener\">\t\t\t\t\n\t\t<\/a><a href=\"https:\/\/www.linkedin.com\/shareArticle?url=https%3A%2F%2Fnvcausa.com%2F%3Fpage_id%3D557%26fl_builder\" target=\"_blank\" onclick=\"window.open(this.href,&#039;social-share&#039;,&#039;left=20,top=20,width=500,height=500,toolbar=1,resizable=0&#039;);return false;\" rel=\"noopener\">\t\t\t\t\n\t\t<\/a>\n\n","protected":false},"excerpt":{"rendered":"<p>Inner Page Heading CHOOSING It is easier to form a C corporation than an S corporation or an LLC. (Simpler is not always but frequently better.) (For an example of what can go wrong with an S corporation election, see Rev. Proc. 2004-35.) You can issue qualified small business stock and potentially qualify for the &hellip;<\/p>\n<p class=\"read-more\"> <a class=\"\" href=\"https:\/\/nvcausa.com\/choosing-a-structure\/\"> <span class=\"screen-reader-text\">Choosing a Structure<\/span> Read More \u00bb<\/a><\/p>\n","protected":false},"author":3,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"site-sidebar-layout":"default","site-content-layout":"default","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"disabled","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"default","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"","footnotes":""},"_links":{"self":[{"href":"https:\/\/nvcausa.com\/wp-json\/wp\/v2\/pages\/557"}],"collection":[{"href":"https:\/\/nvcausa.com\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/nvcausa.com\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/nvcausa.com\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/nvcausa.com\/wp-json\/wp\/v2\/comments?post=557"}],"version-history":[{"count":0,"href":"https:\/\/nvcausa.com\/wp-json\/wp\/v2\/pages\/557\/revisions"}],"wp:attachment":[{"href":"https:\/\/nvcausa.com\/wp-json\/wp\/v2\/media?parent=557"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}