Comparison for LLC and C-Corporation in California

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Comparison for LLC and C-Corporation in California

 

This article will compare the difference between California-Corporation and LLC from structure, registration requirements, and tax treatment.

 

Structure

 

  Corporations Limited liability Companies
No. of Shareholder/ Member At least 1 Shareholder At least 1 Member
No. of Director 1 N/A
Characteristics 1. Corporations are intended to provide limited liability; shareholders are generally not individually liable for the debts and obligations of the company.

2. Corporations are assessed corporate taxes on their own profits. Shareholders are taxed separately, if the company distributes dividends to them (or if it pays them a salary, in the case of employee owners).

3. Corporations are allowed to keep $250,000 in retained earnings without accumulated earnings tax.

 1. LLCs are intended to provide limited liability for founders; moving liability for debts and obligations of the business from the entrepreneurs into the company itself.

2. LLCs offer pass-through taxation, the LLC’s owners generally pay personal income taxes on the income of the business.
Disadvantages Double Taxation An LLC cannot go public and be converted to a tradable stock company, and it can be more difficult to raise capital as a result.

 

Registration in California

 

  Corporations Limited liability Companies
Registration Procedure 1. Name your Corporation;
2. Choose a registration agent and address in California;
3. Fil registration documents with California State;
4. Create bylaws and relevant documents;

5. File Statement of Information within 90 days after registration;
6. Make corporate kit;
7. Apply for EIN.

 1. Name availability checking;
2. Choose a registration agent and address in California;
3. File registration documents with California State;
4. Create operating agreement and relevant documents;
5. File Statement of Information within 90 days after registration;
6. Make corporate kit;
7. Apply for EIN.
Company Annual Renewal Required Required

 

Tax Treatment

 

Tax- Business Entity

  Corporations Limited liability Companies
Federal Income Tax Form 1120; 21% Form 1065; For information only
California State Franchise or Income Tax / Annual Tax Form 100;
Greater of 8.84% of business net income or USD 800 minimum franchise tax.		 Form FTB 3522
Every LLC that is doing business or organized in California must pay an annual tax of USD 800.
LLC Fee N/A If your LLC will make more than $250,000, you will have to pay a fee. LLCs must estimate and pay the fee by the 15th day of the 6th month, of the current tax year.

 

Tax- Non-U.S. Individual Shareholder/Member (take foreign individual as an example)

  Corporations Limited liability Companies
Withholding Tax
(Foreigner)		 Form 1042-S;

Required if the entity withheld tax at 30%. The 30% maybe reduced if there is a treaty between US and the member’s/shareholder’s country.

 Form 8805;

Foreign member as individual withholding rate is 37%. The individual can file individual tax return to claim refund for excess tax.
Federal Income Tax Form 1040-NR;

Dividend shall be taxed as income not effectively connected with a U.S. trade or business, the tax rate is 30%. The 30% maybe reduced if there is a treaty between US and the member’s/shareholder’s country. Since net profit has already been levied 21% as income tax in business level, the dividend income tax is second level income tax, which is known as double-taxation.

 Form 1040-NR;

All the LLC net profit will be passed through to the foreign individual and levy individual income tax, the rate is 10%, -37%.
Self-Employed Tax N/A Foreigner do not subject to self-employment tax.
California State Income Tax Form 540NR (CA non-residents);

California non-residents need to pay income tax on their California source income. The tax rates range from 1%-13.3%, depending on their California State adjusted gross income.

 Form 540NR (CA non-residents);

California non-residents need to pay income tax on their California source income. The tax rates range from 1%-13.3%, depending on their California State adjusted gross income.

 

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