S Corp Or Llc? That Is The Question.

As a business owner, it only makes sense to protect your personal assets from company debts and liabilities. The question is: what’s the best way to do that? If you’re going back and forth between the limited liability corporation (LLC) and the S Corporation (standard corporation), you’re certainly not alone!

LLC vs Corporation – The Similarities

So what benefits do these two business entities share? Owners of an S Corp or LLC both enjoy limited personal liability, they both avoid "double taxation," and they both pay income taxes on a flow-through basis like sole proprietors and partners.

In the past, business owners who wanted to protect their personal assets but also wanted to report income and losses on a personal tax return had to create an S Corporation. Today, that can also be accomplished with an LLC. And for many small businesses, the flexibility of the LLC makes it a pretty popular option. In fact, in the LLC vs S Corp battle, the LLC is quickly becoming the entity of choice among small business.

Benefits of LLC vs S Corp

•Simple & Fast – An LLC can be formed in one easy step, while an S Corporation election is made only after a General Corporation is formed first.

•Skip the Formalities – S Corporations are required to hold annual meetings and keep formal minutes, while an LLC is not.

•Flexibility – LLC members can split profits/losses in any way they choose. In an S Corporation, shareholders must receive dividends according to the number of shares that they own, regardless of the amount of effort put into the business.

•Ownership Freedom – Any combination of individuals or business entities can own an LLC. Only United States citizens and resident aliens may own an S Corporation.

Still, when it comes to the question of S Corp or LLC, a clear winner cannot be named. While many business owners are enjoying the simplicity and flexibility of the LLC, it’s not the best choice for everyone.

Benefits of S Corporation

•Issuing of Stock – If you want to entice or compensate employees with stock options or stock bonuses, the S Corp is still the way to go since LLCs do not issue stock.

•Tax Benefits – S Corp shareholders pay Medicare and Social Security tax only on money received as wages or salary, not on profits received as dividends or that stay within the company.

•Fewer Audits – An S Corporation is said to have less risk of government audits as a corporation, compared to an LLC.

As you can see, there’s no clear cut answer as to which form of business entity is better. Each individual business owner will have to weigh his or her options in the battle of LLC vs S Corp. If you’re still feeling overwhelmed, it might be time to talk to a business attorney or accountant about what’s best for you. Another great option is utilizing an online incorporation firm – they can answer your questions and assist you in setting up your S Corp or LLC for a reasonable fee.