ming a C Corp, S Corp, or LLC in Maryland and D.C.

 When you have a business idea, it’s easy to forget about the details like business formation. Many of the initial choices you make can affect your business’s tax and organizational structure for years to come. That’s why it’s important to consult a trusted legal advisor about the organization that’s best for your business to minimize tax liability and reduce personal liability. In Maryland and D.C., three of the most popular business organizations include C Corporations, S Corporations, and Limited Liability Companies. Each organization has its advantages and disadvantages, and you want to ensure that you’re reaping the best possible tax benefits for your business.

Limited Liability Company

A Limited Liability Company (LLC) is one of the simplest business organizations, providing some of the features of a corporation with the flexibility of a simple partnership. The LLC owners are called members and can include a single person, two or more people, or a corporation.  

An LLC doesn’t typically require the same corporate formalities of a C Corp. or S Corp, offering flexible management. At the same time, an LLC offers its members and managers protection from personal liability in many cases. But one of the biggest advantages of an LLC is its simplified, flow-through tax structure. The LLC itself doesn’t pay income tax on its earnings. Rather, the LLC’s members pay income tax on their share of the company’s earnings.

C Corporation

A C Corporation (C Corp.) is the default corporate legal entity, with owners known as shareholders. The C Corp. can accumulate its own assets and debts and assume rights typically granted to individuals. A C Corp. is also a separately taxable entity, unlike an LLC. As a result, the organization will file and pay taxes at the corporate level and pay the corporate tax rate. Additionally, all corporation shareholders will also pay individual income tax on any dividends paid by the company, sometimes known as “double taxation.”

An unlimited number of shareholders can own a C Corp., and there are no restrictions on ownership, making a C Corp. a good choice for your business if you want to raise funds from venture capital or angel investors. A corporate formation also grants the owners or shareholders protection from personal legal liability in many cases.

S Corporation

An S Corporation (S Corp.) is a hybrid organization offering lower, pass-through tax liability with a more formal corporate governing structure. In some cases, an S Corp. is the best option for small businesses to keep taxes lower but still protect from personal liability for shareholders and owners. An S Corp. does have some restrictions on ownership, limiting the organization to 1,000 shareholders. Moreover, corporations can’t own S Corp. shares, only individuals. 

To form a C Corp., S Corp, or LLC in Maryland or D.C., you will file through Maryland’s Secretary of State and D.C.’s Department of Consumer and Regulatory Affairs. To form an S Corp., your attorney will also need to file IRS Form 2553 for the IRS to treat your company as an S Corp.

Experienced Business and Tax Guidance

 When you’re ready to start a new business, you need experienced professional guidance to ensure you’re making the right decisions concerning corporate structure and taxation. Attorney Beverly Winstead is an award-winning tax attorney and law professor with years of experience counseling individuals, corporations, and nonprofits. At The Law Offices of Beverly Winstead, we offer our clients peace of mind along with skilled legal business and tax guidance. Call us at 301-306-1234 or contact us online to schedule a consultation.