Information on Business Formations

There are two main business types in the U.S.: the corporation and the limited liability company. Jaensch Immigration Law Firm can form both types of businesses in accordance with the laws of the state of Florida.

Corporations are classified as either a “C” Corporation or the “S” Corporation. “C” and “S” Corporations are taxed differently by the U.S. Internal Revenue Service (IRS) based on whether they satisfy certain criteria stipulated in the tax code.

“C” and “S” Corporations share their core attributes. Specifically, they offer limited liability. The owners (called “shareholders”) are usually only financially responsible for the debts or liabilities of the corporation up to the amount of their respective capital contribution. At the same time, the corporation is financially responsible only for its debts and liabilities, not for those of its shareholders.

“C” Corporations are typically larger companies with numerous shareholders, and they are often, though not always, publicly traded. The profits of “C” Corporations are taxed twice: the corporation must pay income tax on its profits, and the individual shareholder must pay income tax on any distribution of profits from the corporation.

“S” Corporations are typically smaller privately held companies. The profits of an “S” Corporation are taxed only once: as distributions to the shareholders. However, in order to attain this preferable tax status, certain strict requirements must be met. Above all, the tax code restricts the number of shareholders to 75. Moreover, all shareholders must have a Social Security Number (SSN), which may be obtained only by U.S. citizens, permanent residents, or temporary residents with nonimmigrant visas that permit employment in the U.S. Should a corporation which would otherwise constitute an “S” Corporation fail to satisfy these requirements, the IRS will consider it a “C” Corporation and tax it accordingly.

Limited Liability Companies share a number of core attributes with corporations, but hold a few advantages for the foreign investor. As with corporations, a Limited Liability Company (LLC) offers limited liability for its owners (called “members”). Thus, the members are usually only financially responsible for the debts of the LLC only up to the amount of their respective capital contribution. At the same time, the LLC is financially responsible only for its debts and liabilities, not for those of its members.

The greatest single advantage of the LLC over corporations, with regard to taxation, is that its profits are always taxed only once, as distributions to members (like with an “S” Corporation). This is the case regardless of whether the members have social security numbers or any kind of visa or immigration status in the U.S.

This rule is particularly important when a business has several owners and not all owners have a social security number or a visa permitting employment in the U.S. It is also useful when the owner wishes to return home upon the expiration of his or her visa, but without selling off the enterprise. In such a case, the owners of the corporation would lose the preferable “S” Corporation tax status, and have all profits taxed twice under the less desirable “C” Corporation status, while the owners of a LLC would not be affected in either case.