Thursday, June 6, 2013

LLC Vs S Corp

If you're just starting a business or you're ready to take your business to the next level, you have a lot of decisions to make, and one of the most important decisions you'll face is how to structure your business for legal protection and taxation. For many small businesses, the two most popular types of business entities are the LLC and the Subchapter S Corporation, or S Corp. In the LLC vs S Corp debate, there are a lot of factors to consider when you're considering which is best for you and your business. Here are a few things to consider:

LLC vs S Corp

LLC Pros:

* An LLC is relatively easy to maintain. LLCs require fewer forms than S Corps and taxes only need to be filed once a year.

* Formal meetings are not required, which means there's also no need to keep minutes.

* Start-up costs are lower than those associated with an S Corp.

* LLC members are not bound by profit-sharing regulations -- they decide how profits (and losses) are distributed.

LLC Cons:

* If a member declared bankruptcy or dies, the LLC will be dissolved and you will have to reform your LLC.

* For tax purposes, owners are considered self-employed, which means they have to pay roughly 15% in self-employment taxes on the company's entire net income.
S Corp Pros:

* S Corps offer considerably greater tax savings than LLCs; rather than paying a self-employment tax, only the wages of the business' employees are subject to employment tax. The rest of the company's profits are paid out as a distribution, which is subject to a much lower tax. (However, when S Corp owners pay themselves low salaries in order to receive larger distributions, the IRS may reclassify the distribution as wages.)

* S Corps are considered as being independent of their owners, which means if an owner dies, retires or sells their shares, the S Corp will maintain its status.

S Corp Cons:

* S Corps require significantly more paperwork and recordkeeping than LLCs; regular meetings must be held, minutes must be kept and bylaws must be established.

* S Corps have a much more complicated taxing procedure, and many more tax forms are required. What's more, forms must be submitted throughout the year, not just on April 15.

* Not all states recognize S Corps, and the way an S Corp is treated can vary considerably among states, so spend time learning how an S Corp is treated in your state.

Your business is your livelihood, and if you don't have the right legal and tax structure, you could be leaving yourself open for considerable loss. Use this article as a jumping-off point and then seek the advice of a good attorney who can help you decide whether an LLC or S Corp is better for your business' needs.

Article Source:

No comments:

Post a Comment