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have an unlimited number of shareholders, which in and of themselves may be legal entities.
C corporations own their own assets, incur their own liabilities, and can provide goods or service. They meet the
requirements for about 300 deductible expenses. The fiscal year is flexible in that it can end at any time—typically
at the end of the regular calendar year (December 31), or after any quarter (March 31, June 30, or September 30), or
for that matter at any time. These corporations are taxed on their operating income, and all dividends are considered
taxable income, which means, in effect, that shareholders of a C corporation will be double-taxed, with the
government first taking a bite out of the corporation’s operating income and then, depending on the tax law at the
time, taking another out of the dividends paid to the business owners. On the advantage side, though, C corporations
enjoy a low tax rate on the first $50,000 the company earns.
Creating a C corporation and then hiring that corporation to manage other entities, as I suggested Kerry Kingsley
do, can in some cases create opportunities to reallocate cash flow over different fiscal years and also allow various
tax deductions.

S Corporations
These are typically smaller corporations, with no more than 75 owners, but like the C corporations, they are legal
entities authorized by state law that protect shareholders from legal liability. They are sometimes called Subchapter
S, because they are taxed under Subchapter S of the IRS code. These corporations pay no income tax. All profits and
losses pass straight through to the shareholders, who then assume liability for the taxes; however, the shareholders
are not doubly taxed, as they are in a C corporation. This makes them more like a partnership. S corporations meet
the requirements for approximately 150 allowable expense deductions and can be used as part of a multicorporation
strategy. They are also useful for newer businesses in that S corporations can flow their losses through to the
individual, thus reducing their personal income. Congress and the IRS established this chapter of the tax code to
encourage start-up businesses by giving the owners this use of losses against other income. If and when the company
starts to earn more income, the owners can easily switch the tax status from Subchapter S to Subchapter C.

Limited Partnership

A limited partnership is not a corporation but a business organization with one or more general partners and one or
more limited partners. A limited partnership is an entity created according to state law and registered and approved
by the secretary of the state where it is created. A limited partnership is to be distinguished from a general
partnership, which is not typically a separate tax entity but a pass-through entity, meaning that business income
passes through to the partners, who then report their share of profits or losses on their individual returns. In a limited
partnership, the general partners are the active investors who manage the business and are liable for all its financial
debts and legal obligations. No matter how much or little of the assets they own, they are responsible for 100 percent
of them. The limited partners are passive investors who share in the cash flow, but do not share in the authority of
the business; nor are they exposed to any liability other than the personal risk of their investment. Often the general
partner is a corporation; the corporation is responsible for all financial and legal liability, but the people who own
the shares of that corporation are not. The assets of the general partner are always at risk. All partners contribute to
finance the business, either through cash or something of comparable value, such as property or sweat equity. I find
that limited partnerships are useful when the parties involved do not wish to be on equal footing and one party
would like to remain passive and unaccountable, while others manage the partnership’s activities.

Family Limited Partnerships
Family Limited Partnerships (FLPs) are limited partnerships where the majority of the partners are family members.
Pending legislation regarding estate and death taxes, these are powerful entities for protecting a family’s assets and
as an estate-planning tool.
An FLP’s structure is the same as a limited partnership, except that the parents or grandparents put their assets
into the partnership, act as the general partner, and gift their limited partner interests to their children or
grandchildren. In other words, the parents give up their assets but maintain their control. Although income tax
liability passes through to partners automatically, cash is distributed only at the discretion of the general partners. In
an FLP, children under 14 pay no taxes, but as soon as they turn 14 they take on the burden represented by their
proportional ownership of the FLP.

Limited Liability Company