All About The Business

As a new entrepreneur, it can be difficult to know where to begin. When starting a business, it's important to know which business type will be the best for your new endeavor. Often the question comes up, should I form an LLC or and S Corporation and what's the difference between them? So let's break it down...

An LLC (Limited Liability Company) and an S Corporation (S Corp) are two types of business structures that offer liability protection to their owners. However, there are several differences between the two.

1. Ownership: An LLC can have an unlimited number of owners, known as members, who can be individuals, corporations, or other LLCs. In contrast, an S Corp can have a maximum of 100 shareholders who must be U.S. citizens or residents.
2. Taxation: LLCs are typically taxed as a pass-through entity, which means that the company's profits and losses are passed through to the members and reported on their personal tax returns. S Corps also use the pass-through taxation system, but they must file a separate tax return, and the shareholders pay taxes on their portion of the company's income.
3. Management: LLCs have more flexibility in how they're managed. Members can choose to have a manager run the company, or they can manage it themselves. In contrast, an S Corp must have a board of directors, and the day-to-day management is typically handled by officers.
4. Formalities: LLCs generally have fewer formalities and less paperwork than S Corps. S Corps must hold regular meetings, keep minutes, and follow other corporate formalities.
5. Liability Protection: Both LLCs and S Corps offer limited liability protection, which means that the owners are not personally liable for the company's debts or obligations. However, there are some differences in how this protection works, and it's essential to consult with an attorney to understand the specific protections and limitations of each structure.

Overall, the decision to form an LLC or an S Corp depends on the business's specific needs and goals. It's recommended that business owners consult with a legal and tax professional to determine the best structure for their particular circumstances.