Tax Considerations in Choice of Entity Decision

Abstract

A business may choose to operate as a C corporation, an S corporation, a limited liability company, a limited partnership, or a general partnership. In addition, an LLC may choose to be taxed as a corporation or as a partnership for federal tax purposes and under the laws of some states. A C corporation, an LLC, and an S corporation provide all of their owners with limited liability for state law purposes. A limited partnership also provides all of its owners, except for the general partner, with limited liability. Therefore, the choice between the different types of entities often comes down to tax considerations.

This article discusses the tax considerations in the choice of entity decision by comparing C corporations, S corporations, LLCs taxed as partnerships, limited partnerships, and general partnerships during their formation, operation, and wind-up.