Broker Check

Entity Selection

Proper Entity Selection will impact a business’s (or business owner’s) future taxes and liabilities, and can be one of the most critical decisions that a business owner makes to the long term health, survival, and success of the business.

Summary of Business Entity Choices:

Sole Proprietorship:

  • Easy to form
  • Does not offer liability protection
  • Does not offer tax advantages to the owner.


  • Offers the opportunity for multiple owners
  • Does not offer liability protection
  • Does not offer tax advantages for the owners.

Limited Liability Company (LLC):

  • Can provide for flexibility in the ownership structure
  • Offers liability protection
  • Allows loses to flow through to the members (can only be used to the extent of their tax basis in the LLC)
  • Allows for tax free distributions of appreciated property
  • Favorable for rental real estate
  • Is terminated if 50% or more of membership interest is transferred
  • Members will owe tax on the LLC’s income regardless of distributions

S Corporation:

  • Costs more to create
  • Is a separate legal entity so it does offer Shareholder limited liability
  • Can be converted to a C corporation
  • Corporate losses flow through to shareholders
  • Cannot have more than 100 shareholders
  • Cannot have a nonresident alien as a shareholder
  • Cannot have more than one class of stock
  • Avoids double taxation

C Corporation:

  • Provides for limited liability of shareholders
  • Can raise capital through public offering
  • Share are easily transferable
  • No shareholder tax on undistributed income
  • No ownership restrictions apply
  • Multiple classes of stock permitted
  • Double Taxation: Income is taxed twice – at the corporate level and then again when earnings are distributed to shareholders
  • Very regulated
  • Costly to start

Whether you are considering setting up a Sole Proprietorship, Partnership, Limited Liability Company (LLC), S Corporation, or C Corporation, the knowledge and expertise of J. Neel and company can help you consider all of the short and long term benefits and disadvantages of each structure, and determine the best solution for your unique situation and long term plans.