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Should I Form an LLC or S-Corp?

Why Choose an LLC?

Yearly, more people start LLCs than S-Corps. When considering the LLC vs. S-Corp question, keep in mind that limited liability companies are a bit easier to start and to run, and generally, they take less upkeep to remain compliant. Some distinct advantages of starting an LLC are:

 

  • LLCs provide liability protection for their members. This means your personal assets will be protected against debts incurred by the business.

  • LLCs are “pass-through entities.” This means that LLC members account for company profits and losses on their personal returns and do not file a separate return for the business itself.

  • LLCs can elect to be taxed as a corporation.

  • LLCs provide great flexibility. Corporate management structures are far more rigid than those of an LLC. With an LLC Operating Agreement, you can essentially create the management structure of your choosing.

  • LLCs have far less paperwork up front and in the long-term. This makes them easier to run and to keep compliant with state and local laws.

 

Why Choose an S-Corp?

If you’re deciding on an LLC vs. a S-Corp, you should learn some of the major advantages of an S-Corp. Here are a few:

 

  • S-Corps provide liability protection for their shareholders. Barring extreme circumstances personal assets are usually protected, as they are with LLCs.

  • S-Corps practice pass-through taxation.

  • S-Corps have a more rigid management structure. All S-Corps have hard and fast rules for how to remain compliant, who can vote on corporate practices, etc. These rules give shareholders and owners a real, clear path to follow.

  • S-Corps require more paperwork. While initially daunting,the additional paperwork can give you a concrete record of your decisions and proof that you acted in the best interest of your company. Having these documents can be very valuable for tax and liability purposes.

  • S-Corps can sell stock. To raise capital, corporations often sell stocks. LLCs can only sell interests in their company.

 

In an LLC or S-Corp Better For Me?

Both LLCs and S-Corps are popular options and will give you some measure of personal liability and overall legitimacy. They're both good options if you're looking to upgrade from a sole proprietorship or a partnership, or if you're just starting your business. The type that’s right for you will depend on your individual needs.

Some Factors to Consider:

However, if you’re planning on selling stocks, if you want the most possible protection, and you’re planning on looking for investors, consider starting an S-Corp.

Conversely, if you don’t want to sell stocks, want less paperwork, but want the most flexibility, consider forming an LLC.

Other Resources

Finally, if you’re not sure, visit our Incorporation Center or give us a call. We can answer your questions or point you in the right direction. If you’re ready to start your LLC, you can visit our LLC Map to easily find each state's requirements for filing. Conversely, if you'd like more general information about starting a business, be sure to visit or guide.