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Idaho Business Entity

Comparison Chart

Pass-Through Taxation


LLC

Yes. Pass-through taxation applies to General Partnerships and Limited Liability Company LLC. For taxation purposes, income from your business is treated as your own personal income. This is opposed to traditional, or C-Corporations, where the company itself pays corporate taxes on income before paying profits as dividends to shareholders. S or C-Corporation Elections: While your taxes will change, the facts, ownership, and management structure will not.


S-Corporation

Yes. Pass-through taxation also applies to S-Corporations. For taxation purposes, income from your business can be treated as your own personal income.


C-Corporation

No. C-Corporations pay corporate taxes on profits before paying out the rest in dividends to shareholders. When the shareholder receives a qualified dividend, they pay dividend tax rates which are much less than ordinary income tax rates. In addition, qualified dividends do not increase your ordinary income tax rates, moving you and other income into higher income tax brackets.


Considered a “Disregarded Entity”


LLC

Yes. Since an LLC passes-through its profits directly to the owners/shareholders it is considered a disregarded entity. A disregarded entity refers to a pass-through business entity for the purposes of taxation. This entity is distinct from its owners for some purposes, but not when it comes to taxes. The owners will report the business’s income on their personal tax returns and pay ordinary income taxes on the entire amount. It’s important to note that a disregarded entity refers only to the way it’s taxed, but still has an identity that’s separate from its owner for purposes of employment taxes and liability. S or C-Corporation Elections: While your taxes will change, the facts, ownership, and management structure will not.


S-Corporation

Yes. Since an S-Corporation passes-through its profits directly to the owners/shareholders it is considered a disregarded entity. A disregarded entity refers to a pass-through business entity for the purposes of taxation. This entity is distinct from its owners for some purposes, but not when it comes to taxes. The owners will report the business’s income on their personal tax returns and pay ordinary income taxes on the entire amount. It’s important to note that a disregarded entity refers only to the way it’s taxed, but still has an identity that’s separate from its owner for purposes of employment taxes and liability.


C-Corporation

No. A C-Corporation is a separate business entity from its owners/shareholders. Its income does not pass-through to shareholders and therefore is not disregarded. This entity has natural rights as you would expect with a living person.


Flexible Tax Reporting


LLC

Yes. The IRS does not have a separate taxation category for LLCs. This allows the LLC members to elect at their own discretion a form of taxation that makes the most sense for their business. While your taxes will change, the facts, ownership, and management structure will not. For example, if you elect to have your LLC taxed as an S or C-Corporation, you will not have shares of stock to sell or be qualified for an IPO. To receive the full benefits of a Corporation, you must formally convert your entire LLC. Taxation choices include:

  • Sole Proprietorship (single-member)
  • Partnerships (two or more members)
  • S-Corporation (single or multi-member)
  • C-Corporation (single or multi-member)

S-Corporation

No. If you form your businesses as an S-Corporation, then there is no other taxation option available. However, the IRS does not have a separate taxation category for LLCs. This allows the LLC members to elect at their own discretion a form of taxation that makes the most sense for their business. An LLC can elect to be taxed as an S-Corporation, but not the other way around.


C-Corporation

No. If you form your businesses as a C-Corporation, then there is no other taxation option available. However, the IRS does not have a separate taxation category for LLCs. This allows the LLC members to elect at their own discretion a form of taxation that makes the most sense for their business. An LLC can elect to be taxed as a C-Corporation, but not the other way around.


Taxed at Corporate Level


LLC

No. An LLC is a pass-through company and considered a disregarded entity to the IRS. This means that all profits come through to the owners/shareholders first to be taxed on their individual income taxes. S or C-Corporation Elections: While your taxes will change, the facts, ownership, and management structure will not.


S-Corporation

No. An S-Corporation is a pass-through company and considered a disregarded entity to the IRS. This means that all profits pass-through to the owners/shareholders first to be taxed on their individual income taxes.


C-Corporation

Yes. C-Corporations pay a flat 21% taxes on the profits at the corporate level first. The C-Corporation will file its own tax return separate from all owners/shareholders. After that, individual shareholders pay taxes on dividends paid by the corporation at a reduced qualified dividend rate.


Pays State Taxes


LLC

Yes. All income from your LLC will pass-through to you personally, and that income will be subject to Idaho state taxes on your personal tax return. S or C-Corporation Elections: While your taxes will change, the facts, ownership, and management structure will not.


S-Corporation

Yes. Idaho has a corporate income tax, as well as certain special taxes applicable to S corporations and LLCs. In addition, if income from your business passes through to you personally, that income will be subject to taxation on your personal Idaho tax return. S corporations are required to pay a minimum tax of $20. An additional tax of at least $10 is required if the S corporation owes federal tax on excess net passive income or net recognized built-in gains.


C-Corporation

Yes. Idaho taxes corporate income at a flat rate of 7.4%. There is also a minimum corporation tax of $20, and a $10 excise charged when a return is filed.


Must Take a “Reasonable Wage”


LLC

No. Since an LLC is a pass-through and unable to differentiate between a wage and other payout methods, you will pay self-employment taxes on your share of the profits. S or C-Corporation Elections: While your taxes will change, the facts, ownership, and management structure will not.


S-Corporation

Yes. Even though an S-Corporation uses a pass-through taxation method, owners/shareholders are able to differentiate between a wage and a disbursement. However, a reasonable wage must be paid out to those working in the business before any disbursements are paid out to other owners/shareholders. This reasonable wage must have been paid on a W-2 with employment taxes paid. A reasonable wage is best determined by the replacement cost of that position on the open market. Example If the new S-Corporation profited $58,000 this year and a reasonable wage is $75,000, then all $68,000 must be paid as the reasonable wage. Until the reasonable wage has been met, no disbursements can be made.


C-Corporation

No. There is no law that stipulates that an owner/worker needs to be paid a reasonable wage to legally operate their C-Corporation. However, it’s a good idea to take at least a small wage before paying out dividends. Owners are free to ignore this rule of thumb since it is not a law.


Pays Self-Employment Taxes on All Profits


LLC

Yes. An LLC is a pass-through and unable to differentiate between a wage and other payout methods. Therefore, you will pay self-employment taxes on your share of the profits regardless of how you withdraw the funds. S or C-Corporation Elections: While your taxes will change, the facts, ownership, and management structure will not.


S-Corporation

No. An S-Corporation can differentiate between W-2 wages and disbursements paid after a reasonable wage has been met. In the S-Corporation, W-2 wages and employment taxes are an expense to the company. Any profits thereafter, are distributed and taxes are paid as ordinary income on each owner/shareholders tax return.


C-Corporation

No. Since a C-Corporation is a separate entity, payroll taxes and W-2 wages are paid and expensed by the Corporation. This means that you would be paid as though you where working as an employee for another company. In addition, any profits leftover would be paid out in dividends. Qualified dividends are taxed at a lower rate and not included in your ordinary income.


Can Allocate Wages from Disbursement/Dividend


LLC

No. Owners will pay self-employment taxes on all money withdrawn at any time during the year or profits left over. S or C-Corporation Elections: While your taxes will change, the facts, ownership, and management structure will not.


S-Corporation

Yes. As long as a reasonable wage has been met first, all other profits from an S-Corporation can be disbursed to owners/shareholders.


C-Corporation

Yes. There is no law that stipulates that an owner/worker needs to be paid a reasonable wage to legally operate their C-Corporation. However, it’s a good idea to take at least a small wage before paying out dividends. Thereafter, dividends can be paid at the corporation’s discretion.


Can Allocate Profits Unfairly


LLC

Yes. An LLC may distribute profits to its partners in disproportion to their share of the capital, provided that:

  • The distribution of profits is explained in the operating agreement; and
  • no partner is excluded from the distribution of profits entirely.

S-Corporation

No. an S-Corporation that pays out a disproportionate distribution, may be treated as creating a second class of stock. S-Corporations by law are only allowed to have one class of stock with the same rights to distribution.


C-Corporation

No. A C-Corporation pays out dividends of company profit in accordance with the classes of stock (if more than one class) and the Bylaws. There is no way to discriminate against a shareholder across the same class of stock. However, A C-Corporation may issue several classes of common and preferred stock depending on its ownership structure and financing needs. A class of stock is differentiated by the level of voting rights shareholders receive and the order in which dividends are paid to shareholders. All voting rights and dividend payments of a C-Corporation are spelled out in the Bylaws.


 

Eligible for 199A 20% Deduction


LLC

Yes. If your LLC maintains its pass-through and is elected to be taxed as either a sole proprietor, partnership or S-Corporation, you could be qualified to receive the 199A 20% deduction.


S-Corporation

Yes. An S-Corporation can be qualified to receive the 199A 20% deduction since it retains its pass-through taxation structure.


C-Corporation

No. Since an Idaho C-Corporation is not a pass-through business entity, it is therefore disqualified to receive the 199A 20% deduction. However, during the new tax reform that created the 199A deduction for passthrough entities, they also lowered the corporate taxes to a flat 21%. Due to this new tax reform, the S-Corporation with its 199A deduction and the lower flat rate tax on the C-Corporation creates equality in their tax saving power.


 

High-Earner Preferred


LLC

No. All profits, wages, or draws, must include self-employment taxes of 15.3%. Unfortunately, LLC owners are unable to deduct these expenses from the business and get stuck paying all payroll taxes out of pocket. An LLC is the least preferred by higher income earners. S or C-Corporation Elections: While your taxes will change, the facts, ownership, and management structure will not.


S-Corporation

Yes. As long as a reasonable wage has been met first, all other profits from an S-Corporation can be disbursed to owners/shareholders as ordinary income. In addition, salaries paid to an owner of an S-Corporation is treated as any other employee wage and is deductible. However, paying fringe benefits in an S-Corporation is not a viable upside to high-earners who are looking to reduce taxes. In this entity, all fringe benefits are considered taxable wages. Structuring as a C-Corporation is the only way to take tax-free fringe benefits that are business deductions. What this means for high-earners: You and your business will split the payroll taxes on your reasonable wage. Thereafter, left-over profits will be taxed as ordinary income without the additional 15.3% for self-employment taxes.


C-Corporation

Yes. C-Corporations are not required to pay a reasonable wage. However, it is a good rule of thumb to pay working owners/shareholders even a small wage. Salaries paid to an owner of a C-Corporation is treated as any other employee wage and is deductible. In addition, C-Corporations are allowed to offer their employees (you) a plethora of fringe benefits. These benefits are considered business expenses and not taxable income. As long as the plan is nondiscriminatory, the reimbursements are not taxable to the employees. When ready to form these types of fringe benefits, a nondiscriminatory plan will be spelled out in the Bylaws. Common types of fringe benefits:

  • Health insurance premiums
  • Long-term-care and disability insurance premiums
  • Medical reimbursement plan
  • Education Assistance
  • Company-owned cars or other vehicles
  • Moving and Housing Benefits
  • Retirement plans
  • Memberships in fitness clubs
  • And many more….

What this means for high-earners: You and your business will split the payroll taxes on your salary. Thereafter, you can maximize fringe benefits in the C-Corporation which will drastically reduce profits that are taxable at the corporate level of 21%. Lastly, any left-over profits will be paid out in the form of dividends, which are taxed at a reduced qualified dividend rate of 15-20% and do not affect your ordinary income taxes.


 

Investor Preferred


LLC

No. Investors are usually seeking a more formal business entity to invest their money. Since an LLC is held to little requirements concerning management structure, it is easy to destroy the limited liability protection. One of the first moves a creditor or lawsuit will make, is to show that the non-working partners are involved personally. This removes the limited liability barrier and opens the investors up to personal liability. In addition, investors in LLC’s find it difficult to determine what their money is going to, whether it’s being spent appropriately, and the value they are receiving since there is no stock. To make matters worse, it is very possible for investors to be distributed a K-1 on profits in which they were never paid. Since an LLC is still a pass-through entity, all profits on the books will trigger a total payout at the end of the year. Many times, extra profits are being used for operating cost, payrolls, expansion and so on. It may also be an internal issue concerning bad bookkeeping and accounting systems.


S-Corporation

Yes. Investors like to minimize their risk. Only corporations provide a true liability shield and can issue stock. Keep in mind that S-Corporation can only issue one class of stock and are unable to offer different levels of voting rights to potential shareholders/investors. In addition, investors can potentially get a disbursement in the form of a K-1 for taxable income in which the money was never received. This is a very common occurrence and may hinder your S-Corporations potential investors. Why would shareholders get a K-1 for money they never received, and why would they have to pay income taxes on it? Since an S-Corporation is still a pass-through entity, all profits on the books will trigger a total payout at the end of the year. However, this doesn’t mean the profits are free to sucked dry. Many times, extra profits are being used for operating cost, payrolls, expansion and so on. It may also be an internal issue concerning bad bookkeeping and accounting systems.


C-Corporation

Yes. Investors like to minimize their risk. Only corporations provide a true liability shield and can issue stock. A C-Corporation stock can be issued either as voting shares, which allow shareholders to exercise some control, or non-voting shares. A corporation can issue just a few shares to a small number of shareholders, including investors, or it can make a public offering on the stock market. The C-Corporation is usually a better investment, held to higher standards of operation, diverse classes of stock, never distributed taxable dividends for money they never received, and have valuable stock to sell. This is by far the most preferred business entity for investors.


 

Recognized Worldwide


LLC

No. An LLC is not formally recognized by our own federal government, let alone a foreign country. LLC’s are registered at the state level only, it isn’t until you register an EIN that the IRS becomes aware of your new business and the taxation status you are choosing. In addition, while you may be able to hold foreign companies or real estate in an LLC, it doesn’t mean that you will receive the same level of protection that is expected in the US. It is also more difficult to establish foreign bank accounts and credit. Each country will have their own rules concerning these unincorporated business entities.


S-Corporation

Yes. An S-Corporation is viewed as a US Corporation and is well known worldwide. The only downfall to the S-Corporation structure when dealing with overseas income is the taxation conundrum due to its pass-through characteristics.


C-Corporation

Yes. A C-Corporation is viewed as a US Corporation and is well known worldwide. This business entity is well equipped to handle any foreign adventure you can think of.


 

Profits are Paid Using Dividends


LLC

No. All wages, draws or profits will pass-through to the owner(s) tax return, where they will pay self-employment taxes and ordinary income taxes on the total. If you are a sole proprietor all money paid to you will be listed on the schedule C of your personal tax return. However, if you are a partnership then all wages, draws and profits will come on a K-1 form. There is no dividend option unless previously elected to be taxed as a C-Corporation. S or C-Corporation Elections: While your taxes will change, the facts, ownership, and management structure will not.


S-Corporation

No. After a reasonable wage has been met, all other profits will be disbursed to owners/shareholders through a K-1 form. This money will not be subject to self-employment taxes but taxed as ordinary income on owners/shareholders tax return. There are no dividend options available.


C-Corporation

Yes. Distributed profits are paid out to owners/shareholders through a dividend (1099-DIV) form. If the dividend is qualified, then it is taxed at a reduced rate of 15-20%. This money is not subject to self-employment taxes, nor does it get taxed as ordinary income. Qualified dividend requirements:

  • Must be issued by a U.S. corporation, or by a foreign corporation that readily trades on a major U.S. exchange, or by a corporation incorporated in a U.S. possession.
  • The shares must have been owned by you for more than 60 days of the “holding period.” The holding period is defined as the 121-day period that begins 60 days before the ex-dividend date, or the day on which the stock trades without the dividend priced in.

Always excluded from being qualified:

  • Capital gains distributions
  • Dividends on bank deposits
  • Dividends held by a corporation in an Employee Stock Ownership Plan (ESOP)
  • Dividends paid by tax-exempt corporations

 

Profits are Paid Using Disbursements


LLC

No. All wages, draws or profits will pass-through to the owner(s) tax return, where they will pay self-employment taxes and ordinary income taxes on the total. If you are a sole proprietor all money paid to you will be listed on the schedule C of your personal tax return. However, if you are a partnership then all wages, draws and profits will come on a K-1 form. There is no disbursement option unless previously elected to be taxed as a S-Corporation. S or C-Corporation Elections: While your taxes will change, the facts, ownership, and management structure will not.


S-Corporation

Yes. After a reasonable wage has been met, all other profits will be disbursed to owners/shareholders through a K-1 form. This disbursement is not subject to self-employment taxes but taxed as ordinary income on owners/shareholders tax return.


C-Corporation

No. Distributed profits are paid out to owners/shareholders through a dividend (1099-DIV) form. Only S-Corporations use disbursement to refer to profits paid out after all reasonable wages have been met. A disbursement is not subject to self-employment taxes but taxed as ordinary income on owners/shareholders tax return.


 

Can Retain Earnings for Future Growth


LLC

No. All wages, draws or profits will pass-through to the owner(s) tax return, where they will pay self-employment taxes and ordinary income taxes on the total. There is no viable way to retain earnings for future growth unless you simply reinvest after-taxed money back into the business.


S-Corporation

Yes. S-Corporation can distribute profits to the owners/shareholders, keep them as retained earnings or do a little of both. The difference between an S and C-Corporation is that the C-Corporation makes this decision after 21% corporate taxes are paid. Thereafter, there is no additional taxes to owners/shareholders until money is paid through a dividend. An S-Corporation doesn’t pay taxes. The owners/shareholders pay all the taxes on the company’s profit, no matter what the company does with that profit. Retained earnings can become a serious issue since owners/shareholders get taxed on profits regardless of whether they actually received a cash distribution from the company.


C-Corporation

Yes. C-Corporations can retain earnings for future growth after the 21% corporate taxes are paid. After this the corporation can choose to pay the remaining profits as dividends to shareholders or retain the money for future growth. However, if your corporation is to hold an excess of $250,000 the IRS can charge an additional tax.  Unlike s-corporation shareholders, a c-corporation shareholder does not pay taxes on dividends/money in which they did not receive.


 

Provides Limited Liability to All Owners/Investors


LLC

Yes. LLC owners usually enjoy limited personal liability for many of their business transactions, but this protection can be diminished. Since the LLC has little rules regulating and formalizing their business behavior, owner(s) can unintendedly be putting themselves at risk. LLC owners can be held personally liable if:

  • Personally injures someone.
  • Personally guarantees a bank loan or a business debt.
  • Fails to deposit taxes withheld from employees’ wages.
  • intentionally engages in fraud, illegal, or recklessness that causes harm.
  • treats the LLC as an extension of their personal affairs, rather than as a separate legal entity.
  • No functioning operating agreement to govern their behavior.

If owners don’t treat the LLC as a separate business, a court can decide that the LLC doesn’t exist. This would mean that the owners are instead doing business as individuals who are personally liable for their acts.


S-Corporation

Yes. S-Corporation owners/shareholders usually enjoy limited personal liability for many of their business transactions, but this protection can be diminished if not careful. When your business is formed as a corporation, the required bylaws, minutes, meetings and solutions are a critical source of protection. These documents are top priority during a lawsuit and will protect your limited liability status. S-Corporation owners can be held personally liable if:

  • Personally injures someone.
  • Personally guarantees a bank loan or a business debt.
  • Fails to deposit taxes withheld from employees’ wages.
  • intentionally engages in fraud, illegal, or recklessness that causes harm.
  • treats the S-Corporation as an extension of their personal affairs, rather than as a separate legal entity.
  • No functioning Bylaws to govern their behavior.

If owners/shareholders don’t treat the S-Corporation as a separate business, a court can decide that it doesn’t exist. This would mean that the owners are instead doing business as individuals who are personally liable for their acts.


C-Corporation

Yes. C-Corporation owners/shareholders usually enjoy limited personal liability for many of their business transactions, but this protection can be diminished if not careful. When your business is formed as a C-Corporation, the required bylaws, minutes, meetings and solutions are a critical source of protection. These documents are top priority during a lawsuit and will protect your limited liability status. C-Corporation owners can be held personally liable if:

  • Personally injures someone.
  • Personally guarantees a bank loan or a business debt.
  • Fails to deposit taxes withheld from employees’ wages.
  • intentionally engages in fraud, illegal, or recklessness that causes harm.
  • treats the C-Corporation as an extension of their personal affairs, rather than as a separate legal entity.
  • No functioning Bylaws to govern their behavior.

If owners/shareholders don’t treat the C-Corporation as a separate business, a court can decide that it doesn’t exist. This would mean that the owners are instead doing business as individuals who are personally liable for their acts.


 

Provides Large Fringe Benefits


LLC

No. If you’re an LLC taxed as a partnership or sole proprietor, your fringe benefits are generally considered guaranteed payments or other compensation for income and self-employment tax purposes. Naturally, there are exceptions to the general rules. Certain fringe benefits aren’t taxable, instead, they are given the same tax treatment as non-owner/employees. Fringe benefits not subject to taxes:

  • Cell phones, provided for non-compensatory business reasons
  • On premises athletic facilities
  • Minimal value (de-minimis) benefits
  • Minimal value (de-minimis) meals
  • Retirement planning services, under employer’s qualified plan
  • Working condition benefits
  • Lodging on business premises
  • Meals on business premises, provided for convenience of the employer
  • Employee discounts

S-Corporation

Yes. An S corporation cannot provide as many tax-free fringe benefits to shareholders-employees as a traditional “C” corporation. However, an S corporation still provides more tax-free benefits to shareholder-employees than an LLC taxed as a sole proprietor or partnership. Before you get excited about the fringe benefits of an S-Corporation, beware that there is also a special rule that applies to shareholders that own more than 2% of the company. The Two-Percent Rule S-Corporations shareholder-employees lose tax-free fringe benefits when they own 2 percent or more of the company. According to this law an S-Corporation cannot deduct these payments as business expenses and must treat the payments as taxable W-2 wages paid to the shareholders.

  • Cost of group term life insurance coverage up to $50,000
  • Contribute to accident and health plans
  • Reimburse for meals
  • Lodging furnished for the convenience of the corporation
  • Establish cafeteria plans
  • Contribute to employee health savings accounts
  • Reimburse for the cost of qualified transportation
  • Adoption expenses
  • Moving expenses

Exceptions to the 2% Rule Shareholders that own more than 2% do not lose certain fringe benefits include, payments to pension and profit-sharing plans, compensation for injury, reimbursements for educational assistance, dependent-care assistance, qualified employee discounts, working condition fringe benefits, qualified retirement planning services and on-premises athletic facilities.

  • S corporation shareholder-employees can receive retirement plan benefits based on their earned, W-2 income and not on their shares of the corporation profit.
  • pension plans to employees, including shareholder-employees.
  • A working condition fringe benefit is an expenditure that would be deductible as an employee business expense if directly paid by the employee. This could be training or education to further their skills for the company.
  • S Corporations can provide a vehicle to a shareholder-employee as a tax-free fringe benefit if only used for business purposes. If using for personal reasons, the fringe benefit turns into taxable income.
  • A de minimis fringe benefit refers to small, hard-to-track benefits that an employee receives. This could be coffee, water, snacks or meals in the work place.

C-Corporation

Yes. The C-Corporation allows owner/shareholder-employees to receive the most amount of tax-free fringe benefits out of all business entities. C-Corporations are allowed to offer their owner/shareholder-employees a plethora of fringe benefits. These benefits are considered business expenses and not taxable income. As long as the plan is nondiscriminatory, the reimbursements are not taxable to the employees. When ready to form these types of fringe benefits, a nondiscriminatory plan will be spelled out in the Bylaws. If you are afraid of offering too much to your non-owner/shareholder-employees, then you can include a more difficult to obtain fringe benefit requirement. No Two-Percent Rule C-Corporations do no limit tax-free fringe benefits its owner/shareholder-employees for those who own more 2% like an S-Corporation. A C-Corporation receives full deductions for the cost of employees’ (including owner employees) health insurance, group term life insurance of up to $50,000 per employee, and even long-term care premiums without regard to aged based limitations. If one has a small corporation and a lot of medical expenses that aren’t covered by insurance, the corporation can establish a plan that treats all expenses as tax deductible. Fringe benefits such as employer provided vehicles and public transportation passes are also deductible. Common types of fringe benefits:

  • Health insurance premiums
  • Long-term-care and disability insurance premiums
  • Medical reimbursement plan
  • Education Assistance
  • Company-owned cars or other vehicles
  • Moving and Housing Benefits
  • Retirement plans
  • Memberships in fitness clubs
  • And many more….

 

Can Have Multiple Owners


LLC

Yes. If you are an LLC with two or more owners, then you will be a partnership unless otherwise elected.


S-Corporation

Yes. An S-Corporation can have a maximum of 100 shareholders that are US citizens, permanent residents or an LLC taxed as a sole proprietor.


C-Corporation

Yes. A C corporation can have any number of owners or shareholders, although it is required to register with the Securities and Exchange Commission (SEC) upon reaching certain thresholds. These thresholds are extremely high and there is no need to worry about them unless initiating an IPO.


 

Can be Owned by One-Person Only


LLC

Yes. If you are an LLC with one owner, then you will be taxed as a sole proprietor unless otherwise elected. In Idaho you and your marital-partner can still opt to be taxed as a sole proprietor even though there are two members.


S-Corporation

Yes. An S-Corporation can be owned by one shareholder only.


C-Corporation

Yes. A C-Corporation can be owned by one shareholder only.


 

Provides Owners with Shares of Stock


LLC

No. LLC’s cannot issue stock, nor can they issue stock if elected to be taxed as an S or C-Corporation.


S-Corporation

Yes. S-Corporations can issue one class of stock with a maximum number of 100 shares.


C-Corporation

Yes. C-Corporations can issue multiple classes of stock with an unlimited number of shares.


 

Different Classes of Stock


LLC

No. LLC’s cannot issue any stock, nor can they issue stock if elected to be taxed as an S or C-Corporation.


S-Corporation

No. S-Corporations can only issue one class of stock with a maximum number of 100 shares.


C-Corporation

Yes. C-Corporations can issue multiple classes of stock with an unlimited number of shares.


 

Strict Ownership Rules


LLC

No. LLCs are unique in that there are no restrictions on ownership. Both resident and non-resident aliens, as well as foreign persons and entities, may own an LLC within the United States. LLCs can also be owned by individuals, corporations, and other LLCs.


S-Corporation

Yes. S-Corporations are very strict about who can become an owner/shareholder. In addition, this business entity can only issue one class of stock with a maximum of 100 shares. S-Corporations are known for very strict owner/shareholder rules, but it can own almost anything other than another S-Corporation itself. Eligible shareholders

  • S. citizens
  • Permanent residents
  • Single member LLCs
  • Qualified subchapter S trusts
  • Testamentary trusts created by a will
  • Grantor trusts
  • Bankruptcy estates
  • Revocable trusts created as part of an estate

C-Corporation

No. Any entity, including individuals, LLCs, and other S and C-Corporations, can be a shareholder. C-Corporations have the least number of rules relating to ownership of shares.


 

Eligible for IPO Initial Public Offering


LLC

No. LLC’s are unable to issue shares of stock to shareholders. This make an initial public offering an impossible task. Your company would need to be converted to a C-Corporation to be granted the ability to have multiple classes of stock and an unlimited number of shares.


S-Corporation

No. Since S-Corporations are limited to 100 shareholders, it is not possible to use an S-Corp to make an initial public offering. Your company would need to be converted to a C-Corporation to be granted the ability to have multiple classes of stock and an unlimited number of shares.


C-Corporation

Yes. A C-Corporation was designed for unlimited shareholders with multiple classes of stock. This business entity can easily transition from a closely held corporation, to a thriving stock on publicly traded markets.


 

Required Meetings and Minutes


LLC

No. Due to the LLC’s lack of legal formalities, this business entity is not required to have annual meetings or record minutes and resolutions. However, it is in these documented meetings, minutes and resolutions that the limited liability and separation of personal and business is protected. Even though LLC’s are not required by law to conduct these formalities, it is a great way for owners to protect their personal assets and avoid major conflict down the road.


S-Corporation

Yes. Failure to properly document annual meetings, minutes and resolutions to support important decisions can result in a loss of your S-Corporations crucial tax benefits. The formalities and law of these requirements are there to protect and limit the potential risk of investors and shareholders. Ignoring your own corporate existence could result in being disregarded by the courts and being held personally liable for corporate debts. Preparing and maintaining adequate corporate records are your first and best line of defense against losing the protection of your corporate status and ensuring continued harmony among your directors and shareholders. In addition, if the corporation is involved in a lawsuit, these documents will likely be thoroughly reviewed by all parties. Meetings, minutes and the resolutions are a simple task for closely held corporations. If you are the only owner/shareholder than you will attend, vote and sign for each position. Meeting: when, where, why and how Minutes: The documentation of major issues, votes and resolutions. Resolutions: The resolution in writing that will be executed going forward.


C-Corporation

Yes. Failure to properly document annual meetings, minutes and resolutions to support important decisions can result in a loss of your C-Corporations crucial tax benefits. The formalities and law of these requirements are there to protect and limit the potential risk of investors and shareholders. Ignoring your own corporate existence could result in being disregarded by the courts and being held personally liable for corporate debts. Preparing and maintaining adequate corporate records are your first and best line of defense against losing the protection of your corporate status and ensuring continued harmony among your directors and shareholders. In addition, if the corporation is involved in a lawsuit, these documents will likely be thoroughly reviewed by all parties. Meetings, minutes and the resolutions are a simple task for closely held corporations. If you are the only owner/shareholder than you will attend, vote and sign for each position. Meeting: when, where, why and how. Minutes: The documentation of major issues, votes and resolutions. Resolutions: The resolution (decision) in writing that will be executed going forward.


 

Required Annual Idaho State Renewal


LLC

Yes. All businesses, regardless of entity type, must complete the annual state renewal report. You will receive a renewal card in the mail annually. It is usually a bright colorful post card that is sent out to your business mailing address or a registered agent. On the card it will say “Annual Report Due – Reminder Notice.” On the back of the card there is a website sos.idaho.gov with a pin number below. You will go to this website and file online. Renewing your Idaho business license with the Secretary of state is easy. They will have you confirm a few pieces of information, mostly concerning any changes that have occurred during the year. Once you are done, print the completed Annual Report Form and place with your other important documents.


S-Corporation

Yes. All businesses, regardless of entity type, must complete the annual state renewal report. You will receive a renewal card in the mail annually. It is usually a bright colorful post card that is sent out to your business mailing address or a registered agent. On the card it will say “Annual Report Due – Reminder Notice.” On the back of the card there is a website sos.idaho.gov with a pin number below. You will go to this website and file online. Renewing your Idaho business license with the Secretary of state is easy. They will have you confirm a few pieces of information, mostly concerning any changes that have occurred during the year. Once you are done, print the completed Annual Report Form and place with your other important documents.


C-Corporation

Yes. All businesses, regardless of entity type, must complete the annual state renewal report. You will receive a renewal card in the mail annually. It is usually a bright colorful post card that is sent out to your business mailing address or a registered agent. On the card it will say “Annual Report Due – Reminder Notice.” On the back of the card there is a website sos.idaho.gov with a pin number below. You will go to this website and file online. Renewing your Idaho business license with the Secretary of state is easy. They will have you confirm a few pieces of information, mostly concerning any changes that have occurred during the year. Once you are done, print the completed Annual Report Form and place with your other important documents.


 

Governed by Bylaws or Operating Agreement


LLC

Yes. LLC’s use an operating agreement whereas corporations use bylaws. An operating agreement is similar in nature but is more specific to the flexible management style of an LLC. The operating agreement is an important document that aids in legally separating owners from the company. This document outlines any major aspects of the business including, company information, duties of active owners, percentage of ownership, distribution of profits and losses, buyouts, and death. An operating agreement is required by banks to open a business checking or savings account, and to apply for lines of credit.


S-Corporation

Yes. An S-Corporation uses bylaws whereas an LLC uses an operating agreement. Bylaws are more formal than an operating agreement, but similar in nature. The bylaws are an important document that aids in legally separating owners from the company. Corporate bylaws are required by banks to open a business checking or savings account, and to apply for lines of credit. Common components of bylaws:

  • Organization’s name, purpose and office location
  • Members
  • Board of directors
  • Committees
  • Officers
  • Meetings
  • Conflict of interest
  • Amending bylaws

C-Corporation

Yes. An S-Corporation uses bylaws whereas an LLC uses an operating agreement. Bylaws are more formal than an operating agreement, but similar in nature. The bylaws are an important document that aids in legally separating owners from the company. Corporate bylaws are required by banks to open a business checking or savings account, and to apply for lines of credit. Common components of bylaws:

  • Organization’s name, purpose and office location
  • Members
  • Board of directors
  • Committees
  • Officers
  • Meetings
  • Conflict of interest
  • Amending bylaws

 

Can Own Real Estate


LLC

Yes. An LLC is a favorite vehicle for owners of income-producing real estate seeking to establish a level of personal liability protection. Because the LLC is a separate legal entity, the objective is to transfer title from the individual to the LLC, to avoid being targets of any lawsuit arising out of the ownership of the property. In most cases, you can transfer property into an LLC without triggering a taxable event. One method is to have your corporation pay rent for a building which is owned by a separate LLC that you own. The rent paid by the corporation is a tax deduction for the business and the income from the rent is offset by operating expenses as well as the depreciation.


S-Corporation

Yes. An S-Corporations can own real estate and is the best at protecting shareholders limited liabilities. However, real estate that goes into either type of corporation typical does not come out tax-free. This is a significant disadvantage for real estate investors. Transferring property out of a C or S-Corporation is a taxable event whereas it is not taxable in an LLC. When it comes time to refinance, you will appreciate an LLC. However, you can have your corporation buy real estate. One method is to have your corporation pay rent for a building which is owned by a separate LLC that you own. The rent paid by the corporation is a tax deduction for the business and the income from the rent is offset by operating expenses as well as the depreciation.


C-Corporation

Yes. A C-Corporation can own real estate and is the best at protecting shareholders limited liabilities. However, real estate that goes into either type of corporation typical does not come out tax-free. Transferring property out of a C or S-Corporation is a taxable event whereas it is not taxable in an LLC. This is a significant disadvantage for real estate investors. However, you can have your corporation buy real estate. One method is to have your corporation pay rent for a building which is owned by a separate LLC that you own. The rent paid by the corporation is a tax deduction for the business and the income from the rent is offset by operating expenses and depreciation. This is an excellent way to move your wealth into real estate.


 

Perpetual Existence


LLC

Yes. Idaho state allows the LLC to have a perpetual existence that can outlive its original owners/members. However, this may not be true with other states.


S-Corporation

Yes. An S-Corporation has a perpetual existence that can outlive its original owners/shareholders.


C-Corporation

Yes. A C-Corporation has a perpetual existence that can outlive its original owners/shareholders.


 

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