5 Main Types of Business

Question 1

What is an advantage of an LLC?

Answer 1

Any of these are correct:
• The members of an LLC have protection against liability. They cannot be held liable for company losses, or debts, and business credit and their personal assets (such as a house or car) cannot be recovered by the debtors.
• LLCs do not have a legal requirement to conduct formal meetings, maintain minutes of the meeting, or record resolutions.
• Pass-through taxation principles apply and the company itself is not taxed unless it opts for being treated as a regular corporation. All business profits, losses, and expenses are accounted for by its individual members. Members have to show the earnings in their individual tax returns and accordingly pay taxes. This allows the avoidance of double taxation by way of corporate tax payment along with the individual income tax.

Question 2

What is an advantage of an S Corp?

Answer 2

Any of these are correct:

• S Corporations avoid the double taxation aspect of C corporations. The income of an S corporation is not taxed at the corporate level. Instead, the reported income is passed through to the owners where it is taxed at personal tax rates.
• Owners have limited liability.
• Transfer of ownership of shares is easy.
• S corps have perpetual lifetimes.
• Owners receive tax-free benefits because the corporation can take deductions for deferred compensation plans, insurance, and retirement plans.

Question 3

What is an advantage of a C Corp?

Answer 3

Any of these are correct:
-Owners have limited liability. The owners’ assets are protected from the debts and liabilities of the corporation. Shareholders are not held liable for business losses.
- Easier to raise capital. It is easier to attract capital with the sale of stocks and bonds. A corporation can have an unlimited number of investors.
-Easy to transfer ownership. Shares of stock can be sold.
Corporations have perpetual lifetimes. The entity continues to exist beyond the deaths of the owners.
-Certain expenses are tax-deductible. Owners can receive tax-free benefits such as deductions for retirement plans and insurance

Question 4

What is an advantage of a Nonprofit?

Answer 4

Any of these are correct:

• No Taxes - As a nonprofit corporation, your organization can get state and federal exemptions from corporate income taxes plus certain other taxes.
• Tax-Exempt Public and Private Donations - Once incorporated, most charities go on to apply for nonprofit designation from the IRS. As a 501(c)(3) nonprofit you can receive grants and donations. Foundations only give grants to 501(c)(3) organizations.
Individual donors to your nonprofit corporation can claim personal federal and state income tax deductions, and bequests may be exempt from federal estate taxes.
• Board members, officers, and employees of your organization receive protection from liability for corporate debts or lawsuits. Creditors can only go after your corporate assets, not the personal assets of the people who manage, work for, or volunteer for your nonprofit.
• The nonprofit corporation continues to exist beyond the lifetime or involvement of the people who began it or who have managed it.

Question 5

What is a disadvantage of an LLC?

Answer 5

Any of these are correct:
• LLCs have a limited life and are usually dissolved when a member dies, or if the company faces bankruptcy.
• LLCs cannot go public, as there are no shares or shareholdings. For the same reason, issuing shares to employees through stock options is not possible.
• Even though the paperwork and the complexities associated with LLCs are significantly less than those required for forming a corporation, its formation is still substantially more complex than a partnership or sole-proprietorship.

Question 6

What is a disadvantage of an S Corp?

Answer 6

Any of these are correct:

• Only one class of stock is permitted.
• S corps are limited to a maximum of 100 shareholders.
• Stockholder’s types are limited. Stockholders can only include individuals, estates, and trusts.
• Other corporations, partnerships, and nonresident aliens cannot own shares of an S corporation.

Question 7

What is a disadvantage of a C Corp?

Answer 7

Any of these are correct:

• Double taxation of corporation’s profits. The corporation pays federal and state taxes on its profits. When dividends are paid to shareholders, they are treated as income and taxed again.
• States have higher fees. States charge annual franchise fees for corporations.
• More state and federal regulations and oversight. Tax filings are more complicated for corporations. States require the filing of Articles of Incorporation, corporate bylaws, and annual reports. Corporations must designate a board of directors and hold annual meetings.

Question 8

What is a disadvantage of a Nonprofit?

Answer 8

Any of these are correct:

• Non-profit organizations are subject to stricter reporting requirements.
• Benefits arising out of the nonprofit organization cannot be used for the personal benefit of its members, directors, officers beyond a permissible limit.
• Getting grants is a tedious job.
• In case, the incorporators decide to move onto some other pursuits in life, they cannot take along the assets accumulated by the non-profit organization.

Question 9

What is an advantage of a DBA?

Answer 9

Any of these are correct:

• Low filing fees
• You do not have the ongoing record keeping requirements and other formalities of maintaining a corporation or LLC

Question 10

What is a disadvantage of a DBA?

Answer 10

Any of these are correct:

• You do not have liability protection
• You will be personally liable for the debts of your business.
• You will not have exclusive rights to your business name. In many states and counties, anyone can register for any DBA.