Forming your business is an exciting time!

 

Many people just like you aren't sure what the differences are between an LLC and Corporation. Use the information below to help you make the best decision. 

Limited Liability Company (LLC)

 

 

Limited liability for debts of the business

 

Unlimited number of owners

 

Owners can be individuals and businesses

 

Owners do not need to be U.S. citizens or residents

 

Business and personal finances must remain separate

 

Multiple tax options

 

Formal compliance required

 

Better structure for IPO or investors

 

 

Corporation (Inc)

 

 

Limited liability for debts of the business

 

Unlimited number of owners

 

Owners can be individuals and businesses

 

Owners do not need to be U.S. citizens or residents

 

Business and personal finances must remain separate

 

Multiple tax options

 

Formal compliance required

 

Better structure for IPO or investors

 

 

Should I consider an S-Corp Election? 

When forming an LLC or Corporation, you may decide that being taxed as an "S Corporation" makes sense for your business. 

 

 

 

If choosing an LLC, making an S-Corp election provides the following advantages: 

 

  • Owners can also be employees;

  • Income to owners can be paid as wages and distributions, saving on employment taxes;

  • Provides greater tax benefits under the Tax Cuts and Jobs Act. 

 

If choosing a Corporation, making an S-Corp election provides the following advantages: 

 

  • Pass-through taxation instead of "double taxation;" 

  • Provides greater tax benefits under the Tax Cuts and Jobs Act. 

 

The advantages seem great... so why wouldn't someone make an S-Corp election?

 

In order to make an S Corp election, you must comply with certain requirements and limitations. These include: 

 

  • No more than 100 shareholders;

  • Shareholders cannot be corporations or other business entities;

  • Shareholders can only be U.S. citizens or residents; 

  • Only one class of stock or interest is permitted. 

 

Because of these limitations, an S-Corp election may not be appropriate if you want to attract investors or if you need different classes of stock or interests (such as when you have active and passive investors).