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When to choose a LLC or a corporation

Nov 27, 2020 | Business Formation

Some entrepreneurs select a business formation that doesn’t meet their needs, whether they lose their business partner or decide they need more help in the daily operation. However, you are not stuck with the structure you initially chose.

You can actually modify your company’s structure. Some of the most popular options to select are a Limited Liability Company (LLC) or an S-corporation.

Why those specific options?

There are actually several similarities between LLC and S-corps including:

  • Separation of legal entities in a state filing
  • Less personally responsible for business liabilities and deaths due to limited liability protection
  • Pass-through taxes which means no taxes for the business itself
  • Profits or losses are listed on the owner’s individuals tax returns
  • Necessary taxes are paid and reported at the individual level
  • LLCs only file business tax returns if there is an additional owner

Both options give more strength to the owners while reducing any liabilities on a personal level. It makes sense that many entrepreneurs are drawn told these options as their businesses continue to grow.

But what are the differences?

While both options may work for your company, it’s important to note the differences, such as the strict ownership guidelines set for S-corporations. If you are not a U.S. citizen, you cannot be a shareholder in an S-Corp. Also, an S-Corp cannot have more than 100 shareholders.

In an LLC, there is more freedom for who is involved and the capacity of their role in the company. They operate similarly to a partnership where members of the LLC manage the larger decisions for the company but avoid the daily operations.

If you want more freedom with the ownership aspect of the company, you may want to pursue an LLC. But consider all your options before you work through the application process in Florida.