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Related Articles

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 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.

CLPS Incorporation Provides Update on Partnership Agreement with an Established China-Listed Financial IT Company

CLPS Incorporation (Nasdaq: CLPS) ("CLPS" or "the Company"), today provided an update on the partnership agreement with a Chinese company listed on one of the domestic Chinese stock exchanges ("Partne ...

Published:  Mon, 06 Jul 2020 18:10:00 GMT



Titan Pharmaceuticals Urges Stockholders to Vote "FOR" Proposal to Amend Its Certificate of Incorporation

PRNewswire/ -- Titan Pharmaceuticals, Inc. (NASDAQ: TTNP) ("Titan" or the "Company") today urged its stockholders to vote "FOR" an amendment to ...

Published:  Wed, 08 Jul 2020 05:00:00 GMT



Industrial Floor Mats Market 2020-2024 | Incorporation of Multiple Safety Features in Mats to Boost Growth | Technavio

Technavio has been monitoring the industrial floor mats market and it is poised to grow by USD 806.15 million during 2020-2024, progressing at a CAGR of over 4% during the forecast period. The report ...

Published:  Wed, 01 Jul 2020 05:20:00 GMT



Angola: Minister Announces Incorporation of Optical Fiber in Aerial Communications

Angolan minister of Transport Ricardo D'Abreu announced Wednesday the inclusion of fiber optic cable in air navigation services, installation of digital radio and new security systems, as one of the ...

Published:  Thu, 02 Jul 2020 06:01:00 GMT



Bluetooth Headphones Market to Hold Revolutionary Growth Owing to Incorporation of Wireless Headsets With Smart Devices Till 2025 | Million Insights

Growing digital transformation has led to a rise in adoption of smart home devices. Incorporation of wireless headsets with smart devices is expected to fuel market growth. Further, increasing trend ...

Published:  Thu, 02 Jul 2020 01:46:00 GMT



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