What Are the Benefits of an LLC Instead of S Corp?
Limited Liability Corporations, or LLCs, are similar to a corporation, offering protection to business owners by granting them limited personal liability for the debts and actions of the business. LLCs are also like a partnership, providing management flexibility and ease compared to an "S" corporation, with similar tax benefits.
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Liability
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Owners of an LLC have limited liability protection like a corporation, but flexibility like that of a sole proprietorship.
Profit Sharing
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LLCs can choose their own distribution of profits in a flexible way, such as 70/30, rather than 50/50, or a percentage based on shares owned.
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Less Administrative Burden
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LLCs are easier to operate compared with the formal legal requirements of the S corporation.
Taxation
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An LLC's losses, profits, and expenses all flow through the company to the individual members. LLCs do not pay both corporate and individual tax. However, LLC partners will have to pay self-employment tax, and don't get as many deductions as an S corporation.
Ownership Restrictions
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There are no LLC ownership restrictions. An S corporation can only have 100 shareholders; none of them can be nonresident aliens, other corporations, or LLCs.
Deciding Between an LLC and S Corp
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There are many benefits to an LLC; however, there are also many reasons to consider an S corporation. Ask your accountant or tax lawyer to help determine which is right for you.
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- Photo Credit Image by Fotolia.com, courtesy of Chad McDermott
