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What are the Main Differences between an LLC and an S-Corp?

What Is a C-Corporation?

What Is an LLC?

What Is an S-Corp?

Which Type of Company Incorporation is Right for You?

 

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What are the Main Differences between an LLC and an S-Corp?

Perhaps you've already decided to shift out of sole proprietorship or general partnership status. Friends, acquaintances or (bitter?) experience itself might have alerted you to the personal financial risks of sole proprietor or partnership status in business. Advice might come from all directions: From well-meaning friends, acquaintances, other business owners, even relatives...with no business background! The limited liability corporation, or LLC, and the S-corp status may have been suggested to you by one or more interested parties. Thoroughly evaluating the pluses and minuses of the two types of structure is critical to making an intelligent decision.

So what are the main differences between an LLC and an S-Corp?

First of all, both structures are designed to limit personal liability relative to taxes and business debt.

An LLC, or limited liability corporation, is much more like a general partnership or sole proprietorship than a corporation. The owners declare the profits from the business on their own tax returns. No corporate return is required.

An S-Corp is a corporate structure that the Internal Revenue Service assigns a special status. "Subchapter S" status allows a corporation to avoid filing a corporate tax return, reporting instead any profits or losses on the personal return(s) of the owner(s). Otherwise, establishing an S-corporation means jumping through all the administrative hoops that federal, state and local governments require of C-corporations.

An S-Corp must be registered with state, and possibly, local authorities. Filing articles of incorporation and establishing by-laws are necessary steps. Shareholders have to elect a board of directors. Regular meetings must be calendared for both directors and shareholders, and minutes from these meetings must be recorded. In addition, like a C-corporation, an S-corporation must comply with any state or local business licensing requirements. Compliance with all these regulations usually means retaining legal counsel, something an LLC may not need to do to set up shop.

Neither the LLC nor the S-corp structure requires filing a business tax return. Both LLC owner-members and S-corp owners declare business income on their personal returns at tax-filing time.

As a distinction, S-corp owners are also shareholders, and shareholders who work for the company are required to pay themselves a salary that is in line with industry salaries for similar work. The owner pays income tax on that salary, but may or may not owe any taxes on the company's profits. On the other hand, LLC owners pay self-employment tax on 100 percent of the company's net income. Needless to say, this can create a burden.

Also on the downside for the latter structure, LLC means not only limited liability but limited life: If one of the owners dies -- or even goes bankrupt -- the LLC is automatically dissolved. This can be disruptive to business, especially for longstanding clients and employees. An S-corp, as a corporation, quite literally has a life of its own... legally speaking. The vicissitudes of mortality create no obstacle to the operation of an S-corp.

Taking a good, long look at the pros and cons of the S-corp and the LLC is crucial. Seeking legal advice on which structure best suits your circumstances is good practice.

Almond grower: Many benefits from whole orchard soil incorporation

The loss of more than half of the biomass power generation capacity in California has left growers with few disposal alternatives for wood generated by whole orchard removals. While piling and burning pulled trees has been the standard practice ...

Published:  Wed, 15 Nov 2017 14:34:00 GMT



Freeport celebrates 125th anniversary of village incorporation

Freeport celebrated the 125th anniversary of its incorporation as a village last month, kicking off a year of history-themed events. Residents voted 214 to 132 to be incorporated as a village in what was then part of Queens County on Oct. 18, 1892, at the ...

Published:  Tue, 07 Nov 2017 08:15:00 GMT



Apple Valley visionary remembered: Dick Pearson credited with starting incorporation movement

APPLE VALLEY - Thirty-three candidates vied for the seats that would make up the first Town Council, but among the favorites was the man credited for starting the movement that led to incorporation. When votes from the Nov. 8, 1988, election were finally ...

Published:  Mon, 06 Nov 2017 23:53:00 GMT



INCYTE CORPORATION (NASDAQ:INCY) Files An 8-K Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year

INCYTE CORPORATION (NASDAQ:INCY) Files An 8-K Amendments to Articles of Incorporation or Bylaws; Change in Fiscal YearItem 5.03 Amendment to Articles of Incorporation or Bylaws; Change in Fiscal Year. On November15, 2017, the Board of Directors (the ...

Published:  Fri, 17 Nov 2017 08:09:00 GMT



Infibeam Incorporation executes agreement with Adani Wilmar

Infibeam Incorporation has executed an agreement with Adani Wilmar to develop, integrate, implement and maintain an online ecommerce and mobile platform with integrated logistics framework for on demand customer purchase of Adani Wilmar Products.

Published:  Tue, 07 Nov 2017 21:07:00 GMT



Incorporation And Domiciliation Services

Companies incorporated in Luxembourg have to register their registered office and a business address in the territory of Luxembourg. Incorporation of a company requires various steps and documents, from choosing a type, a name and an address of the company ...

Published:  Wed, 08 Nov 2017 23:14:00 GMT



BRIEF-Fujian Aonong Biological Technology Group Incorporation unit acquires stake in two firms

* Says its unit acquired 100 percent stake in a agricultural development firm for 1 million yuan * Says its unit acquired 40.2 percent stake in Jinhua-based livestock breeding firm for 11.2 million yuan and raised 60 percent stake in the livestock breeding ...

Published:  Tue, 07 Nov 2017 18:20:00 GMT



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