LLC vs. S-Corp

(Another long shot, but here goes!)

Many moons ago, I had an S-Corp, so I understand that legal structure.

Today, there's the LLC -- Are there any tax advantages to the LLC? Are there

any liability or operating risk advantages/disadvantages to LLC?

It can vary a bit by state, but generally the tax handling, administration and setup for a one-person LLC is easier than an S-Corp. Check with a CPA or an attorney.

<br /><br />

I've prepared a chart that lists many of those pros and cons (such as administrative hassle, legal protection, ease of set up) for the various business entities. I'll send it for free to any one who requests it via email to me at carolyn@photoattorney.com. Please include your name and snail mail address with the request.<br />

<br />

I've seen your posts - I thought you might surface on this.

I appreciate the brief, accurate response! Thank you.

I'll need the local forms/filings and procedures for Pennsylvania -- If you can help with that, I'll contact you directly.

Carolyn - Thank you very much for your time today!

Excellent consult, and I'll see 'round the forums, or in BC.

;}

I am a lawyer. Comparing an LLC to an S-corp is like comparing an apple to a tennis racquet. An LLC is a "limited liability corporation" under state law, and it limits your personal liability for various things you might screw up while operating the corporation. An "S-corp" is a Federal income tax concept, so called because it comes from "Subchapter S" of the Internal Revenue Code. In an S-corp, you elect to have "pass through profits" that only get taxed at the level of the owner. There is no income tax at the corporate level in an S-corp. The opposite of an "S-corp" is a "C-corp" in which the corporation must pay income taxes and the owner must pay taxes too when he gets his profits, which are called "dividends." This is the so-called "double taxation" that you sometimes hear about from politicians and business people.

You can have an LLC that either is or is not an S-corp, since the S-corp election is an independent choice you make for tax purposes AFTER you set up your corporate entity under state law. I strongly recommend that you talk to a good small business oriented CPA about the S-corp and get his or her recommendations. Also, make sure a lawyer with small business experience sets up your corporation initially and that you consult with the lawyer at least once a year to maintain the corporate formalities according to state law.

If you fail to maintain your annual corporate formalities, you will lose the limited liability protection that is really the only reason to have a corporation in the first place. You would then be personally liable for all the debts and liabilities of the corporation.

For the same reason, discuss personal liability issues with the lawyer before you make your spouse an officer in your corporation. Bringing your spouse in is a good way to put all your personal assets, like your house, in jeopardy if your corporation gets in trouble. It can make it easier for corporate creditors to take your personal assets to pay the corporate debts.