TopConsumerReviews.com is a world-leading consumer product review site. We provide detailed reviews and ratings for thousands of products and services.
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.
Top Consumer Reviews Articles
TopConsumerReviews.com provides unique articles that you won't find anywhere else on the internet. These articles are designed to help you make the most informed decisions possible.
Company Incorporation In The News
20, 2018 (GLOBE NEWSWIRE) -- Independent Bank Corp. (NASDAQ Global Select Market: INDB) ("Independent" ), parent of Rockland Trust Company ("Rockland Trust" ), and Blue Hills Bancorp ...
Published: Thu, 20 Sep 2018 16:41:00 GMT
WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission said on Thursday that Barrett Business Services Inc (BBSI.O) and the company's former controller, Mark Cannon, have agreed to settle ...
Published: Thu, 20 Sep 2018 18:08:00 GMT
OKLAHOMA CITY--(BUSINESS WIRE)--LSB Industries, Inc. (NYSE: LXU) ("LSB" or "the Company" ) today announced that its Executive Vice President and CFO, Mark Behrman will be participating in ...
Published: Thu, 20 Sep 2018 17:08:00 GMT
This entire experience has highlighted and conveyed to us just how much we need to take advantage of the moments in our life where we can focus solely on our company but even more so, it's helped us c...
Published: Thu, 20 Sep 2018 17:19:00 GMT
Start Time: 17:00 January 1, 0000 5:30 PM ET Research Solutions, Inc. (OTCQB:RSSS ... Earlier today, the company issued a press release discussing these results, and a copy of the release is ...
Published: Thu, 20 Sep 2018 21:18:00 GMT
- View Full Site -
Reproduction in whole or in part in any form without the express written consent of TopConsumerReviews.com, LLC is strictly prohibited.