1. “Winning Business Strategies”
Webinar Series
What’s the right business
entity choice?
Presented by:
Michael E. Stover, CPA/ABV & Michael P. Moloney, JD, CFP®

2. Entity Choices
 C Corporation
 S Corporation
 LLC
 Partnership
 Sole Proprietorship

3. Liability Issues
 What protection does each form offer?
– From the bank
– From the landlord
– From creditors of the entity
– From creditors of owners

4. Restriction on Ownership
 Only relevant for an S Corporation
 S Corporation shareholders:
– Must be limited to 100
– Can only be certain kinds of trusts
– Cannot be an entity with multiple owners

5. Operational Tax Issues
 Income tax
– Double taxation vs. single taxation
 Employment tax
 Deductibility of Fringe benefits

6. Income Tax Issues
Corporation Partnership S Corporation
Corporation is taxed Partners taxed on their Shareholders taxed on
on its income using its share of income, their share of income,
own set of graduated regardless of regardless of
tax brackets. distributions. Losses distributions. Losses
may be deducted by may be deducted by
$ 0 - $ 50,000 = 15% partners to the extent shareholders to extent
$ 50 - $ 75,000 = 25%
$ 75 - $100,000 = 34%
of basis. Share of of basis.
$100 - $335,000 = 39% liabilities increase
> $335,000 = 34% basis of GPs.
Allocation is Allocation is
determined by determined by interest
Agreement if owned on a daily
“substantial economic basis.
effect”.

7. Employment Tax Issues
Corporation Partnership S Corporation
Officers are paid a Partners are not Officers are paid a
salary which is subject employees, amounts salary which is subject
to employment taxes. paid are considered a to employment taxes.
distribution of
Dividends of retained earnings, unless they Dividends of retained
earnings are subject to qualify as a earnings are NOT
income tax at guaranteed payment. subject to income tax
shareholder level. Self-employment tax at shareholder level.
(double taxation) on general partner’s
share of income.
No additional tax on
distributions.

8. Fringe Benefits
Corporation Partnership S Corporation
Available to all Partners are required Shareholders owning
shareholders who are to include value of 2% or more are
employees. Cannot fringe benefits in gross required to include
be discriminatory in income. value of fringe benefits
favor of highly in gross income.
compensated
employees. (For example, not (For example, not
allowed to participate allowed to participate
in Sec. 125 plans) in Sec. 125 plans)

9. Estate Planning Issues
 Transferability for gifting and minority
discounts
 Income distributions to owners
 Income tax basis step-up on death of
owner

10. Distributions of Property
Corporation Partnership S Corporation
Corporation required No gain or loss to the Same as corporation.
to recognize gain as if partnership or partner Gain is allocated to
it sold the property. unless Sec. 751 shareholders.
applies. Partner Distributions must be
Value is the taxed to assumes partnership’s proportionate to all
shareholder as a basis in property. shareholders.
dividend.
(double taxation)

11. Tax Issues on Sale or Liquidation
 On sale of company stock
 On sale of company assets

12. Sale of Stock or Assets
Corporation Partnership S Corporation
Capital gain treatment Capital gain treatment Capital gain treatment
on sale of stock. 50% unless Sec. 751 on sale of stock.
of gain can be applies. Small business stock
excluded from income. exclusion/deduction
$50,000 ($100,000 if does not apply.
filing joint) of loss can
be deducted against Gain on sale of assets
ordinary income. allocated to
shareholders, which
Sale of assets taxed to increases basis, which
corporation, then reduces gain upon
liquidating dividend liquidation.
taxed to shareholders.

13. Changing From One Form to Another
 C Corporation to S Corporation
 S Corporation to LLC
 LLC to S or C Corporation

14. Review Pros and Cons
 C Corporation
 S Corporation
 LLC
 Partnership
 Sole Proprietorship

15. What’s the right business
entity choice?
Presented by:
Michael E. Stover, CPA/ABV & Michael P. Moloney, JD, CFP®
IRS Circular 230 disclosure: To ensure compliance with requirements imposed
by the IRS, we inform you that any U.S. federal tax advice contained in this
document is not intended or written to be used, and cannot be used, for
the purpose of (i) avoiding penalties under the Internal Revenue Code or
(ii) promoting, marketing or recommending to another party any
transaction or matter that is contained in this document.