Picking the Right Incorporation For Your Business

Selecting The Right Corporate Formation For Your Business

One of the first major decisions that any Wisconsin business needs to make is which corporate formation to use.  Depending on your business strategy there are several formations that businesses can use.  The following table provides some of the common considerations and highlights of certain formations.

LLC

C Corp

S Corp

Filing requirements Articles of organization, along with any filing fees. Articles of incorporation, along with any filing fees. Articles of incorporation, along with any filing fees. Form 2553 will also need to be filed with the IRS. Finally, a few states require a state-level S Corp form.
Ongoing requirements Annual reports and/or fees. The Wisconsin Department of Financial Institution’s fee schedule is Here. Annual fees, annual reports, annual meetings and formal recordkeeping requirements. Must follow general corporate rules, but also needs to keep meeting the requirements for converting to an S-Corp via Form 2553.
Ownership Owned by its members. Each member holds a membership interest in the company that gives them certain rights and privileges. Owned by its shareholders. Shareholders have varying degrees of ownership depending on the stock they hold. Owned by its shareholders. Shareholders have varying degrees of ownership depending on the stock they hold.
Ownership restrictions No major restrictions on who can be an owner. No major restrictions on who can be an owner. Can have a maximum of 100 shareholders, who must be US citizens or resident aliens. Cannot be owned by another business.
Company management Either managed by its members (owners) directly or by managers who have been appointed by the members. Uses a threefold management system, consisting of shareholders, a board of directors, and corporate officers. Uses a threefold management system, consisting of shareholders, a board of directors, and corporate officers.
Governing document The operating agreement. It outlines what an LLC can do, and explains the roles of members and managers. A Corporation should have bylaws to explain how the corporation should run and explain the responsibilities of shareholders, directors, and officers. S Corps should have bylaws which explain how the corporation should be run, as well as the responsibilities of shareholders, directors, and officers.
Fundraising Can sell ownership interests in the company to raise funds. However, this usually requires the consent of all existing members and can have significant business implications. May sell multiple types of stock to raise funds, such as common stock and preferred stock. May sell a single type of stock to raise funds, but ownership rules apply to any potential buyers.
Taxation Taxes “pass through” to the owner by default. But an LLC can elect to be taxed as a corporation, and pay taxes directly. Pays most taxes as a corporation. However, dividends are taxed twice: once at the corporate level, and then again at the shareholder level. Has “pass-through” taxation, which means that the shareholders pay taxes, rather than the business itself.

 

 

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