Choosing the right form of business is a decision that should be made while taking into considerations issues regarding tax, liability, management, continuity, transferability of ownership interest and formality of operation.

One needs to be aware about different types of business structure as the choice would have legal and tax implications. Here’s a quick overview of the differences between the most common forms of business entities: S corp, C corp and Limited Liability Company (LLC).

A S Corporation is not itself subjected to federal tax, rather the shareholders pay their individual taxes on their income. Qualifying basis for S corp require the business to have only one class of stock and less than 100 shareholders. It must be formed in the United States and may not be a bank, insurance company or a Domestic International Sales Corporation (DISC). S corp also requires all its shareholders to be citizens or residents of the United States. Non-resident aliens may not hold shares.

On the other hand, C Corporation is taxed separately from its owners under United States Federal Income Tax Law. Unlike an S Corporation, there is no limit on the number of shareholders and shares may be held by people who are neither citizens nor residents of the United States.

A rather flexible form of enterprise that blends elements of partnership and corporate structures is Limited Liability Company. LLC, being a hybrid combines certain characteristics of both a corporation (limited liability) and a partnership (pass through income taxation). It is often more flexible than corporations and well suited for companies with single owners.