If forming an LLC or corporation seems like the best plan, you will need to choose which type is best for your eBay business. Their primary characteristics are described below.
|What do they have in common?||LLCs and corporations both shield owners from personal liability.|
|What's the difference?||The LLC does not pay income tax. It is a "pass-through" tax entity, meaning that profits and losses pass through the business to the owners. If a business is an LLC, the income, loss, credits, and deductions from it are reported on the individual income tax returns of the LLC owners. Sole proprietorships and partnerships are also pass-through entities. An LLC with several owners is taxed like a partnership; a one-owner LLC is taxed like a sole proprietorship.*|
A corporation** is different. It is a legal entity separate from its shareholders. The corporation files its own tax return (IRS Form 1120) and pays its own income taxes on the profits kept in the company.
|Which is best for your eBay business?||If you're primarily concerned about limiting your liability, you're generally better off forming an LLC. If you're seeking tax benefits, your accountant may advise forming a corporation.|
* The IRS permits LLC owners to elect alternative tax treatment, for example, they may choose to be taxed like a corporation. Ask your tax adviser for more information.
** When we refer to a corporation, we're speaking of the regular or "C" Corporation. Another type of corporation, the “S” Corporation, is discussed below.