Which Business Entity is Right for Your Trucking Company (LLC, C Corp, S Corp)
Choosing a business entity type when you create your own business can seem daunting, but it doesn’t have to be.
The three most common types of entities around are Limited Liability Companies (LLCs), C Corporations (C Corps), and S Corporations (S Corps). Before deciding which one is right for you, let’s go over the basic overview of each to give you some useful information.
Limited Liability Company (LLC):
Typically the favored choice for both small and medium-sized businesses, the advantages of creating an LLC are as follows:
- Offers limited liability protection to the owner, protecting you from liability and business debt leaking into your assets and finances. In simple terms, if your company is sued for any reason, the entity suing you cannot go after any of your finances that aren’t directly tied to your business.
- Flexibility in profit distribution, as well as management structure.
- An option for “pass-through taxations”, meaning that the money you make or lose from your business will be taxed through your tax returns. This prevents you from being taxed double for your business and personal finances, as they are viewed as one.
C Corporation (C Corp)
One of the main differences between C Corporations and LLCs is the fact that C Corporations are viewed as separate legal entities from those who own them, also known as shareholders. One of the benefits of a C Corp is that it doesn’t have a limit on how many shareholders it can have, which can even include other corporations or foreign entities. Other advantages of a C Corp are as follows:
- Capital can be gained from the sale of stock in the company.
- They also have limited liability protection, just like an LLC.
The potential downside, however, is that a C Corporation will be taxed on its profits as well as the individual shareholder’s gain from those profits on their taxes. This is one of the reasons why the C Corp might be favored by a larger company than that of an LLC.
S Corporation (S Corp)
Now, S Corporations need either an LLC or a C Corporation to exist before becoming such. They benefit similarly to the previous two models, but offer more for, and require more from, the company. To qualify to become an S Corporation, it must…
- Have no more than 100 shareholders in the company, and
- Be owned only by U.S. citizens and residents.
If this is a reasonable thing for the company to achieve, then it will receive the following benefits from being an S Corp:
- The same limited liability protection as both an LLC and a C Corp.
- The ability to pass the company’s profits and losses directly to the shareholders instead of the company, avoiding yearly double-taxation, allowing the shareholders to profit much more from the company.
So Which Path is Right for You and Your Business Entity?
By looking at the size and model of your business, and considering the pros and cons listed above, you can confidently make the right decision to ensure that whatever model you choose, will benefit you and your partners the most financially.
If unsure, the professionals at FCCR would be happy to help you navigate the correct path for your business start-up!
Click here for assistance in obtaining your business entity or here to get a new EIN.
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