Assume you plan to start a new enterprise; you know the probability of having losses for the first three years of operations is almost 90 percent, and you know you will report a substantial amount of income from other sources during those same three years. From a tax perspective, which of the following entity choices would be least favorable?
A) General partnership.
B) S corporation.
C) LLC.
D) C corporation.

Question

Quizplus · Accepted Answer

The least favorable entity choice in this scenario would be a C corporation because it is subject to double taxation. This means that the corporation would pay income tax on its profits, and then shareholders would pay income tax on any dividends they receive. If the enterprise is expecting losses for the first three years, it would not be generating profits to distribute as dividends, and therefore the double taxation would be a disadvantage. The better choice in this scenario would be an LLC, as it offers the flexibility of a partnership with the limited liability protection of a corporation, while also allowing for pass-through taxation of profits and losses.

Assume You Plan to Start a New Enterprise; You Know