Category: S corporations


By , April 29, 2010 4:48 pm

On April 27, 2010, I taught a 90-minute national teleconference CLE-credit seminar for National Business Institute on the basics of LLC taxation.  In my experience, for most single-member LLCs whose members are individuals, the two federal income tax regimens that are likely to be useful are sole proprietorship taxation and Subchapter S; and for almost all multi-member LLCs, the relevant federal income tax regimens are Subchapter K (partnership taxation) and Subchapter S.  My seminar was based in part on tables I’ve prepared comparing the above regimens.  If tax choice of entity is a topic that interests you, you can access the table comparing sole proprietorship taxation and Subchapter S, click here; and you can access the table comparing Subchapter K and Subchapter S by clicking here.


By , March 29, 2010 7:37 am

On April 9, 2010, Rodney Chrisman, a professor of law at Liberty University School of Law, will publish an article in the Fordham Journal of Corporate and Financial Law entitled “LLCs are the New King of the Hill:  An Empirical Study of the Number of New LLCs, Corporations and LPs Formed in the United States between 2004-2007 and How LLCs Were Taxed for Tax Years 2002-2006.”  You can access the article here.  A photo of Professor Chrisman is on the left.  You can access his bio here.

The central conclusions of the article are as follows:

  • LLC formations.  As of the end of calendar year 2007, more LLCs were being formed each year than corporations and limited partnerships in all U.S. jurisdictions except California, Florida, Illinois, and New York.  (Recent data appear to indicate that LLCs have overtaken corporations and other non-LLC entities in Florida.  However, because of taxes and other factors in California, filing fees in Illinois, and “publication” requirements in New York, corporate formations are likely to outnumber LLC formations in these three states until they change their laws.)
  • LLC taxation.  To date, only a relatively small number of LLCs have made elections to be subject to federal income taxation under Internal Revenue Code Subchapter S.  However, the annual rate of increase of these elections is phenomenal, and it suggests that eventually, Subchapter S will be as popular with LLCs and their members as with corporations and their shareholders.

Professor Chrisman’s article makes an important contribution to our understanding of the standing of LLCs stand vis à vis non-LLC entities in the American business and professional community.  It also provides critical data on a key issue of LLC taxation—namely; the use of Subchapter S by LLCs.  The article will be useful not only to LLC lawyers and accountants but also to business people who are considering forming LLCs or converting non-LLC entities to LLCs.  Professor Chrisman deserves thanks from us all.

If you’re wondering why LLCs are now “the king of the hill” as compared with corporations, here’s why:  (1) LLCs provide a stronger statutory liability shield than corporations.  (2) Unlike corporations, LLCs provide statutory charging order protections.  (3)  Under the relevant statutory default rules, the LLC management structure is far simpler, more flexible and more user-friendly than the corporate management structure.

If you’re wondering why ever-increasing numbers of LLCs are making S elections, it’s because these elections provide individuals who own single-member LLCs and many individuals who are members of multi-member LLCs with the only available means to avoid Social Security Taxes on their LLC income.