Entity Formation For Your Small Business: LLC versus S-Corp
One of the initial and critical steps in starting any new business is choosing the entity form that best fits the needs the needs of the company. For most small businesses, the decision comes down to the limited liability company (“LLC”) versus the Subchapter “S” corporation (S-Corp). While both business structures provide some similar benefits for small business owners, there are also significant differences between the structures.
Some of the key benefits provided by both the LLC and S-Corp structures include:
- They both provide liability protection for their members (in the case of LLCs) and shareholders (in the case of S-Corps) — Only the money invested in the LLC or S-Corp by its shareholders is at risk, barring exceptional circumstances; personal assets are therefore usually protected against the debts and losses of the business
- They are both generally considered “pass-through” entities for tax purposes — While Subchapter “C” corporations are subject to double taxation of business income, LLCs and S-Corps are generally not taxed at the entity level
Some of the key differences between the two entities include:
S-Corp management structures are more rigid than those of an LLC
S-Corps are limited by a number of restrictions that must be met in order to remain compliant under federal tax rules. Florida LLCs are also subject to certain state statutory provisions, but these provisions can be superseded by an LLC operating agreement that can be drafted with great flexibility in designing the management structure of the company.
Forming and maintaining LLCs involve significantly less paperwork
This makes LLCs easier to run and keep compliant with the relevant federal and Florida state and local laws.
S-Corps may appear more legitimate to potential investors
Traditionally-minded investors may view the S-Corp structure as more permanent than that of an LLC.
S-Corps can sell stock
To raise capital for its business, an S-Corp can sell stock to investors. LLCs can only sell interests in their company.
Choosing the right structure for your small business requires the assistance of a qualified business lawyer. The experienced attorneys at McShane & McShane Law Firm, P.A. can help you select the type of entity that best fits your business needs.