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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.

Charlottesville: Blame the Incorporation Doctrine

There was plenty of blame and finger-pointing in the aftermath of the Charlottesville protests. One woman died and at least 33 people suffered injuries when right-wing and left-wing groups clashed during the Unite the Right Rally. Two state troopers also ...

Published:  Fri, 22 Sep 2017 10:30:00 GMT



Salt Spring looks to heal after rejecting incorporation

Salt Spring Island is a community divided as a result of Saturday's vote against incorporation, but it is resilient and will heal, according to one of the organizers of the campaign against the new form of governance. Patricia Lockie of Positively No ...

Published:  Sun, 10 Sep 2017 16:12:00 GMT



City, Town lock horns over incorporation

BELOIT - Beloit City Manager Lori Curtis Luther is standing by her news release offering annexation options to Town of Beloit residents despite town Administrator Ian Haas calling the release "unfortunate, misleading and incorrect." Luther released a ...

Published:  Wed, 13 Sep 2017 14:00:00 GMT



Edison: approved the project for merger by incorporation of Edison Trading

EDISON: APPROVED THE PROJECT FOR MERGER BY INCORPORATION OF EDISON TRADING. Milan, September 21, 2017 - Edison announces that the minutes of Edison's Board of Directors meeting held on September 20, 2017, which approved, pursuant to art. 2505 - second ...

Published:  Thu, 21 Sep 2017 09:53:00 GMT



West-side town of Beloit residents hear update on east-side incorporation

TOWN OF BELOIT-Residents on the town of Beloit's west side gathered in the Turner High School auditorium Wednesday night to gather details about the east side's efforts to incorporate. The meeting revealed little new information about the ongoing ...

Published:  Thu, 14 Sep 2017 04:34:00 GMT



The First Steps To Register A Company In Singapore

Enact A Secretary Your company needs to have a secretary. This secretary needs to be appointed, by law, within 6 months of incorporation. However, it's a good idea to enact a secretary as soon as possible so that they can alleviate some of the things ...

Published:  Sat, 23 Sep 2017 05:43:00 GMT



Heart of the Valley: City incorporation and Whiskey Row

Almost 122 years ago, Santa Marians went to the polls to vote either for or against the incorporation of the town. It was a hot subject because, if the town incorporated, Whiskey Row was sure to be history. The "wets" wanted things to stay the same ...

Published:  Sun, 10 Sep 2017 00:13:00 GMT



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