What Is The Difference Between A Llc And An S-corp,

What Is The Difference Between A Llc And An S-corp, Anyway

When people want to venture into the business world, they are usually confused as to whether to start an LLC (Limited Liability Corporation) or an S-Corp (Subchapter "S" Corporation). It is important to look at the features of both when forming a company to choose the one that suits you best. This way, you can be sure that you will start a viable business to help maximize on profits. Some of the major difference of the two corporations includes:

Shareholders
When starting an LLC, it is important to note that all the shareholders of the company are normally granted personal protection from the liabilities as well as debts of the business. This means that in case the business were to fail the creditors cannot chase after the personal finances of the employers to recover the money that is owned. This also applies when starting an S-Corp, however, the main difference comes into play when you consider S-Corps are limited in the amount of shareholders they can have. A business entity operating as a Subchapter S-Corporation can only have 75 members in total.

The shareholders should be residents of the country where the company is formed as non residents are not allowed to hold the position. To be a shareholder, one also should not have anything to do with a Limited Liability Corporation any other corporations. The LLC has a more flexible structure where there are no limits or restrictions when it comes to memberships and any qualified member can join without a problem.

Management
Both entities are run differently where the S-Corp has a team of directors that handle all the operations of the company to ensure that everything runs smoothly. The LLC has simpler management procedures as there are no formalities like the former option as the members are the ones who are in charge of handling the management of the entity. This is very vital when you want to incorporate your business to know how to run the business without any restrictions.

Profit Distribution
Before you go ahead and form an LLC, it is important to know how the profit will be distributed to figure how much you will be making after a financial year. With the LLC, this is usually flexible where all the members normally get a share of the cake. On the other hand, there is no flexibility with the S-Corp as the profit is normally divided according to the number of shares. This usually favors the individuals with many shares (i.e. majority shareholders) as they get more "cash", so to speak.

Employment Tax
Employment regulation presents some other notable differences when it comes to the two corporations but let's look at the tax piece for now. With the LLC business model, the owner is usually referred to as self-employed. This is where he will be in charge of paying the employment tax which goes hand in hand with social security and Medicare as well as other fees like incorporation fees. The entire net income is normally considered when coming up with the employment figures. However, within the S-Corp business framework the salaries are the only amount that is taken into consideration when it comes to employment tax.

DISCLAIMER: Please note that this information is provided as a free resource and an aide for your business. We do not make any claims that this information is a "final resource" or all-inclusive source. In addition, we make no allusion to the use of tax shelters of tax evasion methodology. Any inaccuracies are purely unintentional. If you are unsure about legal provisions for corporations, we recommend consulting USA Corporate Services, INC., as they have over 25 years of experience in this field, and perhaps also speaking with an attorney that specializes in business law.

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