Protection of personal assets

Separate legal entity  C Corporation

Added tax benefits

“key man” life insurance deduction                    

Medical plan deduction                            

Flexibility in setting salary & bonuses                                    

Reimbursement policy on expenses & fringe benefits

Minimize taxes paid via tax planning

Unlimited life

Can transfer ownership via stock sales

Non taxable incorporation via IRS Section 351

Requires transfer of business assets to corporation in exchange for stock

15-35% Federal Corporate Tax Rate (Files Form 1120)

8.84% Calif. State Income Tax Rate (Files Form 100) 


Costly to incorporate

Additional attorney fees to maintain corporate form

Must apply for federal corporate EIN (Identification number) & state ID Number

Requires separate corporate tax returns (state & federal)

Payroll tax reporting for employees in corporate name

Separate bank account in corporate name

Fictitious business license in corporate name

Additional record/bookkeeping

Annual board meeting/minutes required

Annual election of officers required

Annual documentation of planning decisions (internal actions taken)

Maintaining updated bylaws

Stock ownership record keeping

Sales Tax # in corporate name

Sales tax reporting in corporate name

Unlimited life

Corporations must pay a minimum California franchise tax of $800 regardless of taxable income.

LLC – Limited liability corporation 

Blends elements of corporation and partnership features.  

Limits liability of specific shareholders

Pass through taxation feature at federal level to shareholders

Pays $800 minimum Calif franchise tax regardless of income

Fewer ongoing formalities i.e. paperwork (meeting requirements)

Credibility (general public perception of credibility over sole proprietor)

No restriction of the type of owners however required consent of all owners to add new members

Not subject to $800 minimum Calif. franchise tax in year of incorporation


Pass through taxation feature (no tax paid at federal corporate level)

Limited to no more than 100 shareholders

1.5% state tax rate

$800 Minimum Calif. franchise tax at corporate level