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Subchapter C Corporation (aka: C Corp or C Corporation): The default tax treatment for a corporation is what is referred to as "C Corporation" status. A C Corporation suffers a double taxation effect. This occurs because the corporation is taxed both at the corporation level when the company generates a profit and also at the shareholder level because the shareholders of the corporation are taxed at the individual level when they receive a dividend from the corporation. To be taxed as a C Corporation, the corporation need not file any election with the IRS, as this is the default tax treatment for a corporation.

Subchapter S Corporation (aka: S Corp or S Corporation): S Corporation treatment allows qualifying corporations to receive more favorable tax treatment by the IRS, by eliminating the double taxation effect that occurs with the C-Corporation treatment. In order to receive S Corporation tax status, the corporation must affirmatively “elect” to be taxed as an S Corporation. In order to elect to be taxed as an S Corp, all of the shareholders of the corporation must be qualifying shareholders. S Corporation treatment transforms the corporation, for tax purposes, into a “flow-through” entity, allowing the profits and losses of the corporation to automatically “flow through” to the individual shareholders. Hence, the corporation itself does not pay federal income taxes. Thus, S Corporation treatment is generally desirable and more favorable to the shareholder.

Limited Liability Company ("LLC"): The default tax treatment for an LLC is much like that of the S-Corporation. The default IRS tax treatment for a single member LLC is what is called “disregarded entity” status. In other words, the IRS, for tax purposes only, disregards the existence of the LLC [even though the LLC may have a separate Federal Tax I.D. number (EIN)] and the profits and losses of the LLC automatically "flow-through" to the member who pays the tax or deduct the loss at the individual level. A multiple member LLC is treated by the IRS as a “partnership” and the profits and losses of the LLC "flow-through" and are attributed to the individual members and the tax paid or the loss is deducted at the individual member level on their respective individual federal tax returns. (Note that, under current IRS rules, an LLC may elect to be treated as an S Corporation or C Corporation by affirmatively filing the respective S Corporation or C Corporation election. Such an election does not change the legal status of the LLC outside of the "tax world" (in the "real world" the LLC would remain an LLC and retain all of the benefits of being an LLC). While an S Corp or C Corp election may, in some instances, have some tax advantage, the decision as to whether or not an LLC should elect to be treated as an S Corp or C Corp is a decision that should be made only after careful consideration and consultation with a qualified tax professional.

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