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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.

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Published:  Sat, 15 Jun 2019 06:04:00 GMT



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Published:  Sun, 16 Jun 2019 17:03:00 GMT



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For users, Alexa Conversations will make it easier to complete tasks that require the incorporation of multiple skills and will cut down on the number of interactions needed to do things like ...

Published:  Sat, 15 Jun 2019 09:19:00 GMT



Southampton scuttles East Quogue's incorporation bid to handle land issues

Southampton Town officials have rejected efforts by East Quogue residents to incorporate their hamlet to better handle land issues because their petition included 34 dead people and lacked ...

Published:  Thu, 13 Jun 2019 16:20:00 GMT



Industrial Controls Market Trends by 2024: Top Players- ABB Ltd, Emerson Electric Company, Honeywell International Incorporation

This report studies the Industrial Controls market size (value and volume) by players, regions, product types and end industries, history data 2013-2018 and forecast data 2019-2024; This report also ...

Published:  Fri, 14 Jun 2019 08:42:00 GMT



The untold story: How a South Pasadena-based group successfully fought the 710 Freeway extension - twice

Joanne Nuckols picked up the story from there: "When the freeway goes through, they actually discussed dis-incorporation of our city. Our town would be given to Los Angeles, Pasadena, San Marino and ...

Published:  Fri, 14 Jun 2019 18:37:00 GMT



2019 Annual report to the electors of the city of Harrington

This is a big year for Harrington as we celebrate the 150th anniversary of the incorporation of the city. Our 150th Committee has been working hard to put together events and raise money for this ...

Published:  Sun, 16 Jun 2019 17:24:00 GMT



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