Choosing a business form is one of the most important decision any small business owner makes when starting a company. In order to protect yourself from personal liability, it is important to create a separate business entity with the Secretary of State. But, which one should you choose? We are going to address briefly the difference between an LLC and S Corporation, so you can get an idea of some vital distinctions.
Subchapter S corporations, also known as S corporations, are very similar to LLCs. There are certain factors in any given business that lends itself better to an S Corporation or an LLC. The factors to keep in mind are: the number of initial owners, the need to attract other investors, how profits will be allocated, and taxation issues.
Both S Corporations and LLCs offer the owners limited liability protection, and are both pass-through tax entities. Pass-through taxation allows the owners of the company to take the gains or losses generated by the company on their personal tax returns. It is a special tax status that eliminates the double taxation that owners of corporations are subject to.
But, S Corporations and LLC are also very different. The ownership of an S Corporation is restricted to no more than 75 shareholders, it cannot be owned by non-US citizens, other corporations, many trusts, LLC, or partnerships. LLCs do not have these ownership restrictions.
S Corporations, however, can exists perpetually, while LLCs usually have limited life spans. The stock of S Corporations is more freely transferable than the membership interests of an LLC. S Corporations are also usually more beneficial for self-employment taxes.
You need a good lawyer to evaluate your needs and help you navigate through the legal quagmire inherent in forming and operating corporations. You must have a firm understanding of basic corporation law in order to protect your personal and professional interest.
Contact Williams Oinonen LLC today for more information about the best corporate form for your business.