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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.

Woodlands board likely to select incorporation consulting firm this week

The Woodlands Township Board of Directors is moving forward with an evaluation of possible incorporation with board members likely selecting a consulting firm this week to help in the process. The township's Board of Directors is set to meet in a special ...

Published:  Fri, 19 Jan 2018 15:59:00 GMT



Research delivers insight into the building information modeling market

This research report analyzes the building information modeling market, with a focus on key firms in the industry such as Nemetschek, Autodesk, Inc., Bentley Systems Incorporation and Trimble Navigation Limited. Research By Markets adds "Global Building ...

Published:  Sun, 21 Jan 2018 10:28:00 GMT



Berlin incorporation informational meetings set

With the election less than one month away to decide if Berlin incorporates, two informational meetings have been set for early February. The meetings are set Feb. 1 and Feb. 6 at 6 p.m. at the Berlin Community Center. Patrick Bates and others involved in ...

Published:  Thu, 18 Jan 2018 07:43:00 GMT



SEC rescinds Rappler's incorporation papers

THE Securities and Exchange Commission (SEC) has revoked the incorporation papers of online news site Rappler, Inc. and its parent company for failing to meet the constitutional limits on foreign ownership, as investors closely monitor the ruling's ...

Published:  Mon, 15 Jan 2018 07:15:00 GMT



Incorporation of Ex-Combatants in Humanitarian Demining: Lessons from Colombia, Somaliland & Southern Somalia

As part of the peace effort between the Colombian government and the FARC, a pilot program was launched in 2015 allowing ex-combatants from the guerrilla to collaborate with Army soldiers in humanitarian demining-an urgent task given the country's ...

Published:  Thu, 18 Jan 2018 12:19:00 GMT



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