ARH Consulting LLC helps owners organize the business questions behind formation or restructuring: who owns the business, who controls decisions, how earnings are used, how owners are compensated, and what future transitions must be supported.
Entity form and tax treatment are separate questions
An LLC is a state-law entity. Its federal tax classification can vary with ownership and elections. S corporation status is a federal tax election for an eligible entity, rather than a replacement for the underlying state-law form. The IRS explains LLC tax classifications and elections.
LLC, C corporation, and S corporation treatment
| Option | Planning focus | Questions for specialist review |
|---|---|---|
| Limited liability company (LLC) | Ownership flexibility, operating agreement, management authority, and the permitted activities of the entity. | State-law eligibility, tax classification, owner compensation, ownership changes, and professional-practice restrictions. |
| Corporation taxed as a C corporation | Corporate governance, shareholder rights, retained earnings, funding, and future ownership transactions. | Entity-level taxation, distributions, compensation, equity planning, and the consequences of a later sale or restructuring. |
| S corporation tax treatment | Eligibility for the election, shareholder arrangements, payroll, distributions, and administration. | Shareholder and stock requirements, reasonable compensation, benefit treatment, state taxation, and election timing. |
The IRS business-structures overview identifies the principal forms and the role of legal and tax considerations. The IRS also describes S corporation shareholder-employee compensation considerations.
Questions that should guide the decision
- How many owners will there be, and what are their roles?
- Will the business retain earnings, distribute them, or seek outside capital?
- How will the owners' work be compensated?
- Are there professional licensing or ownership restrictions?
- What benefits and insurance arrangements are being considered?
- Will a new partner, sale, succession, or expansion be expected?
- What administration, payroll, reporting, and governance can the business maintain?
Professional practices need a separate entity review
An entity suitable for a general business should not be assumed suitable for a law practice. California law corporations must satisfy applicable corporate and State Bar registration requirements. Counsel should evaluate the permitted professional form and ownership rules before formation or conversion. See the State Bar law corporations program.
Structure the operations as well as the entity
Formation is only the beginning. The operating plan should address banking, accounting, recordkeeping, contracts, signing authority, owner decisions, insurance ownership, and responsibilities for annual filings and renewals.
Deliverables
A structure decision brief, an ownership and governance outline, a legal-and-tax coordination checklist, and an implementation responsibility schedule. Formation documents, elections, legal conclusions, and tax recommendations are handled by the appropriate professionals.
A practical starting point
Bring the proposed ownership arrangement, business model, current entity documents if any, compensation expectations, and growth plans. The next step is a coordinated review based on those facts rather than a default recommendation for one entity type.