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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 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 delays this week's incorporation meeting; extends task force indefinitely

Gordy Bunch, chairman of The Woodlands Township Board of Directors speaks during The Woodlands Economic Outlook Conference in 2017. Bunch and the township Board of Directors voted 6-0 on March 21 to ...

Published:  Tue, 26 Mar 2019 09:49:00 GMT



Unanimous Juries and Incorporation of the Bill of Rights

I was very excited to the see the Supreme Court agree to take up the constitutionality of non-unanimous jury verdicts in Ramos v. Louisiana. For reasons that have been well-discussed by others ...

Published:  Tue, 26 Mar 2019 03:00:00 GMT



Town sets date to decide plan on incorporation

TOWN OF BELOIT - Town of Beloit board members will decide April 1 whether to pursue an incorporation petition after the board held a workshop Monday to review statutory requirements. The Board of ...

Published:  Tue, 26 Mar 2019 08:00:00 GMT



No Incorporation Fee For Startups With Capital Upto INR 15 Lakh

The changes have come into effect from March 18, 2019 The Ministry of Corporate Affairs (MCA) has exempted incorporation fee for the startups that have incorporated nominal capital of less than or ...

Published:  Sun, 24 Mar 2019 21:13:00 GMT



Crp Risk Management Ltd - Intimation Of Incorporation Of Wholly Owned Subsidiary

Pursuant to regulation 30 of the SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015, we wish to inform you that the Company viz. CRP Risk Management Limited has incorporated CRP ...

Published:  Tue, 26 Mar 2019 14:55:00 GMT



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