From Class Econ Notes 10.01.2015 Mr. Park

C-Corp & S-Corp Both Offer Limited Liability Protection Separate Legal Entities Composed of Shareholders, Directors, and Officers

C-Corp vs. S-Corp C-Corp Separate Taxable Entity: Corporate Taxes are paid through the corporation No restrictions on ownership S-Corp Pass-Through Taxes: Profit/Losses are “passed through” the business and taxes are reported on the owner’s tax return Restricted to 100 shareholders

Corporate Taxes C-Corp: If corporate profits are then distributed to owners as dividends, owners must pay personal income tax on the distribution, creating “double taxation” (profits are taxed first at the corporate level and again at the personal level as dividends)

Terms Profit = Total Revenue - Total Expenses Profit: A financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any profit that is gained goes to the business's owners, who may or may not decide to spend it on the business. Profit = Total Revenue - Total Expenses Dividend: A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.

What other business types are there? Sole-Proprietorship Partnership Limited Liability Corporation (LLC)

Type of Business Advantages Disadvantages Sole Proprietorship Ease of formation I’m the BOSS Potential Profits Unlimited Liability Limited Capital Limited Life Partnership Shared Responsibility Additional capital Difference between Partners Difficult to Sell Corporation Unlimited life Ease of transfer Limited Liability Double Taxation Difficulty & Expense of Formation S-Corporation Unlimited Life Ease of Transfer No Double Taxation Difficulty and expense of formation Limited Liability Company (LLC) Ease of Formation Potentially Difficult to Transfer Life May Be Limited