LLC, S-Corp, C-Corp?
An LLC, or limited liability company, is a creation of state law. Wisconsin has enacted a set of laws regarding the set up, operation and dissolution of a limited liability company. It can be owned by one to thousands of investors, or by other businesses, and it is relatively easy to set up. One of its best features is that a single person can own it.
A Single Member Limited Liability Company can be set up in under a few hours. Please contact our lawyers Andrew Schmidt for details on how you can benefit from establishing a limited liability company
A “S-Corporation” and a “C-Corporation” are creatures of federal law and have some significant advantages and some distinct disadvantages to investors.
A “S-Corporation” can only be owned by humans and not other entities (some limited exceptions exist) and is ideal for smaller entities and non-public securities ventures.
A “C-Corporation” can be owned by anyone and anything and is ideally meant for larger or more complex settings. The issuance and sale of securities here means significant legal and financial issues. Please see legal consultation before you offer any share for sale at any time.
Here is a checklist of advantages and disadvantages of LLCs, one of our attorneys’ most favorite forms of business entity:
I. Advantages of LLCs
- A properly structured LLC enjoys pass-through tax treatment under partnership tax rules.
- An LLC classified as a partnership for federal income tax purposes avoids the double taxation imposed on C-corporations. Such an LLC also offers certain tax advantages over an S corporation, including a greater flexibility in the allocation of profits, losses and distributions among members and a greater availability of tax-free contributions and distributions of assets.
- The LLC provides limited liability protection to all of its members, regardless of the extent of their participation in the management and control of the business.
- An LLC’s members have the same broad freedom as partners in a partnership to structure economic and management relationships suited to their particular needs.
- LLCs in Wisconsin are not restricted with respect to the number, nature, status, citizenship or residency of their members. It is also no longer required that an LLC have at least two members.
- An LLC may be a member of an affiliated group and may own up to 100% of any other entity.
- LLCs are subject to a minimum of formal statutory requirements.
- LLCs are well-suited for a wide variety of business activities.
II. Disadvantages of LLCs
- The LLC does not have the advantage of a developed body of law to aid its organizers in business planning and statutory interpretation. There also remains some uncertainty about the IRS’s application of certain federal tax provisions to LLCs.
- States are not uniform in their tax treatment of LLCs. Accordingly, state tax issues could complicate the operations of (1) LLCs whose members reside in multiple states and (2) LLCs that wish to do business in multiple states.
- LLCs in Wisconsin and in most other states with LLC statutes may not be owned by a single owner, and it is not clear whether a one-member LLC qualifies for pass-through tax treatment.
- LLCs frequently are prohibited from engaging in certain regulated businesses such as banking, insurance, and professional services.