Although the perception among entrepreneurs is that the C corporation is the entity desired by investors, the actual entity desired by venture capitalists is the limited liability company (LLC), which is similar to the S corporation. The emergence of the LLC as a more popular alternative has resulted from a change in regulation. Regulations now allow an LLC to be automatically taxed as a partnership, unless the entrepreneur actively makes another choice (taxed as a corporation). This easing of election is one important factor that has enhanced the LLC’s popularity.
The S corporation (the S refers to Subchapter S of the Internal Revenue Code) had been the most popular choice of organization structure by new ventures and small businesses.
• The S corporation may not deduct most fringe benefits for shareholder.
• The S corporation must adopt a calendar year for tax purposes.
• Only one class of stock (common stock) is permitted for this from of business.
• The net loss of the S corporation is limited to the shareholder’s stock plus loans to the business
• S corporations cannot have more than shareholders