Lance and Rodney are contemplating starting a new business to manufacture computer software

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Lance and Rodney are contemplating starting a new business to manufacture computer software games. They expect to encounter losses in the initial years. Lance's CPA has talked to them about using an S corporation. Rodney, while reading a business publication, encounters a discussion on limited liability companies(LLCs). The article talks about the advantages of using an LLC instead of an S corporation. How would you respond to their inquiry?



A.

The basis of the S corporation shareholder's interest includes a ratable share of the S corporation's liabilities. This amount can be greater than the basis in the S corporation's stock and permits a greater loss or deduction pass-through.



B.

An LLC has no restrictions on the type or number of owners. An S corporation is limited to 100 shareholders, none of which may be a corporation or a partnership.

 



C.

An S corporation is not subject to corporate-level taxes which is advantageous to Lance and Rodney who will be starting a new business and will not have the excess cash to pay the taxes required in an LLC.



D.

S corporations are flow-through entities that simplify the accounting books and records. An LLC is a complex entity to set up and requires many difficult calculations.

 
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