LLC and S-Corp? What You Need To Know
Before you launch your business, you need to know what type of structure best matches the goals of your company, and sometimes that can be a difficult decision.
Two of the most common types of business structures you can use are an LLC and an S-Corp. But there are some important differences regarding liability and taxes that you should understand.
What Are the Similarities Between an LLC and S-Corp?
There are several similarities between an LLC and S-Corp, including:
- Owners are not personally responsible for business liabilities and debts
- They are ‘pass-through’ businesses, which means that you don’t pay income taxes at the business level, because all profits and loss are ‘passed-through’ to your personal tax returns. And LLCs are only required to file a separate business tax return if there is more than one owner. Even so, there are exceptions for married couples.
What Are Some Differences Between an LLC and S-Corp?
There are also some differences between an LLC and S-Corp, including:
- LLCs are allowed to have an infinite number of members, but an S-Corp is limited to 100 shareholders.
- LLC owners may have to pay estimated quarterly taxes, but owners of an S-Corp must pay themselves as employees and also pay payroll and unemployment taxes.
- An S-Corp can establish bylaws, issue stock and conduct annual director and shareholder meetings. LLCs can establish a company agreement. These actions are all strongly recommended in order to avoid liability, but are not legally required with an LLC.
So Which Is Right For You?
This is a nuanced question that often requires the expertise of a business lawyer to answer.
Before you make any decisions, sit down with an attorney to discuss all the specifics of choosing one set-up over another.
Helping You With Your Startup
Starting a business can be both exhilarating and frightening, and often both at the same time. But one of the most important decisions you will make is deciding what kind of business structure you want to set up. There are advantages and drawbacks depending on the structure you choose, which is why you should hire an attorney with expertise in business law to help you.
The Elissa I. Henry Law Firm, PLLC can help you in all aspects of your business, from creating the ideal structure, to representing you in business disputes. Call us today at (512) 766-4529 to discuss your situation and see how our firm can help you.