LLC or S-Corp
Replies to This Discussion
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Permalink Reply by u30jxwipu1i1 on
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20 years ago when we started EP, we chose to Incorporate with S status, and in recent years most all ventures have been LLC, or LLP, which is basically the same. I suspect that the right answer lies in the hands of a competent Lawyer ( Oxy Moron) and or a good CPA.
Terry Z
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Permalink Reply by Matt Milletto on
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Agreed. Last 3 business of ours have been LLC's, I think it's important to check with a CPA and Attorney if you have multiple owners especially. Good luck!
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Thanks for the quick replies! I was leaning towards S-corp but it now it seems I need to rethink this. The business is in Maine and it seems that most restaurants I have seen are S corps so I suppose I should check with a lawyer.
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Permalink Reply by Jay Caragay on
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Definitely discuss the issue with your attorney and accountant. Each entity has its advantages and disadvantages and you'll be better equipped coming to an understanding with those who will be in the position to help you exploit those advantages and downplay the disadvantages.
For what it's worth, my company is an S-Corporation that was incorporated in 1999.
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Permalink Reply by Dennis McQuoid on
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I had a business in 1999 that was an S Corp. My coffee shop business is an LLC as recommended by two accountants and one attorney. Yes, contact a CPA for direction with that. It could save you a ton of money in the long run.
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Permalink Reply by Steve on
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LLC! SCorp will bring more red tape into the matter along with tax issues.....
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I just formalized the sale of an LLC, that I formed in 2004. While we were a Limited Liability Company, we were taxed as a S corp. This is a Tax issue beyond the protection offered by an LLC, and allows the income of the LLC, to pass onto members as income, just like a S corp.
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Yeah I actually read a blog where a lawyer was talking about how he preferable llc plus subchapter s taxation.
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Can someone who is an owner operator of an S corp chime in on the taxation. I was reading that an owner can be treated as an employee and paid a reasonable salary.
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This is true for an S corp. The officers are employees of the Corp, but the income is passed to the officers rather than the Corp being taxed and then taxed again as income.
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Chris-
I really don't know much of anything about the structure and advantages of an LLC, but to put it as simply as possible: an S Corporation is considered a separate entity (much like you or I would be a separate, living entity) and the "owners" of an S Corporation can both be shareholders as well as employees of the corporation.
As an example, while I hold the majority of shares in my company (giving me de facto control), I also am an employee of the company and paid a wage for my work.
Now whether that wage is "reasonable" or not completely depends on the company's ability to generate revenue. The greater the revenue, the better the potential for the company to compensate its employees. The lower the revenue, the more difficult.
As far as taxation goes (and again this is extremely simplified), an S Corporation only pays income tax (that same kind of tax you and I pay as employees every year) on the profit that it generates - and not on total gross revenue.
So, if a corporation generates $100,000 in sales, but only shows $5K in profit (meaning $95K in expenses) then it only pays tax on that $5K. However, the amount is heavily taxed (upwards of 66%).
Other downsides are that an S Corporation has a myriad of other bookkeeping (and housekeeping) details to stay on top of throughout the year. Other forms of entities are simpler and easier to operate. Again, the best entity for you is best discussed thoroughly with your accountant and lawyer.
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Permalink Reply by Marshall Fuss on
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Very broadly speaking …
Corporations, partnerships and LLC’s are all separate legal “persons” under the law, but they are taxed differently. Partnerships, generally speaking, don’t pay income tax. The partners who own them pay tax on the profits
as individuals (or write off losses against their other income sources).Corporations pay tax on their net income, and their shareholders pay tax on any income distributed to them as dividends or (if they are also employees) as salary.
LLC’s are taxed like partnerships.
A so-called “S Corporation” is any eligible corporation that has made an election with the IRS to be taxed like a partnership.
Owners of partnerships have unlimited liability for their company’s obligations. Owners of corporations and LLC’s have “limited liability” that protects them as individuals from most claims against their business, but
not obligations they have personally guaranteed.Lawyers tend to prefer LLC’s, because they offer enormous flexibility in deciding how they are managed and how income is distributed, unlike corporations, which are bound more strictly by state corporation laws. But, sometimes and in some states, S corporations may have lower annual franchise fees or other advantages.
Lawyers usually frown on partnerships and sole proprietorships for most businesses, because of the unlimited personal liability.
Which form works best always depends on the particular circumstances of the principal owner(s) and their investors. Talk to your lawyer and accountant.
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