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S-Corp or LLC – Which Should You Form?

In the United States, hundreds of men and women decide to become official business owners each year. When this decision is made, another question arises. Will you form an S-Corp or an LLC? According to experts in business law, there are benefits and drawbacks to each option. All businesses differ in their structure and market, and choosing correctly will give you an advantage both legally and professionally.

The Similarities

Let’s start by outlining the similarities between LLCs and S-Corps.

  • Liability – In both cases, owners are not personally responsible for business liabilities and debts
  • Taxation – Both models are pass-through tax entities – meaning no income taxes are paid at the business level
  • Classification – Both options are separate legal entities
  • State Requirements – Both models are required to meet state-mandated formalities, like filing reports and paying fees

The Differences

Florida Business Law AttorneyDespite their similarities, there are many differences between LLCs and S-Corps, especially when it comes to ownership and management.

In Ownership:

  • S-Corps cannot be owned by C-Corps, other S-Corps, or LLCs
  • LLCs can be owned by most legal entities
  • You don’t have to be a US citizen or resident to be a member of an LLC
  • S-Corps cannot have non-US citizens or residents as shareholders
  • LLCs have no member limit
  • S-Corps cannot have more than 100 owners or shareholders

In Management:

  • The owners of an LLC may choose to personally manage their company. They may also choose to hire separate managers.
  • An S-Corp must have directors and officers. The board of directors handles major decisions, but daily operations are passed down to elected officers.

Other Formalities:

  • S-Corps must adopt bylaws, issue stock, hold director and shareholder meetings, and keep corporate records
  • LLCs have recommended formalities, including adopting an operating agreement, holding member meetings, and documenting major company decisions

In Summary

If you choose to form an LLC, you’ll have enhanced credibility, legal protection, and pass-through taxes. However, you’ll also face limited growth potential – as you can never issue shares of stock. Your business may also be treated differently in other states.

On the other hand, choosing to form an S-Corp is a huge undertaking. You’ll benefit from pass-through taxation, limited liability, and the ability to sell stock (and, thus, raise capital). But you’ll face a slew of requirements, ownership restrictions, and formalities along the way.

To choose the right business model for your future, work closely with a professional experienced in business law.

Contact an Experienced Florida Business Law Attorney for Assistance

 If you’re interested in forming an S-Corp or an LLC, contact an experienced Florida business law attorney at the Law Office of Todd M. Kurland. Our team will answer your questions, assist in filing paperwork, collect documentation, and meet deadlines – giving you time to focus on what matters most. Call (561) 693-4514 for a free consultation.

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