Today, I met with two small business owners that wanted to know whether they should incorporate as an S corporation or an LLC. I explained the differences in the two business entities.
First, the first major difference with an LLC and S corporation is flexibility. An LLC is a great business entityf or the right small business owners. Most small business owners do not use the benefits of an LLC. Flexibility is the major benefit of an LLC. For example, with an LLC, a small business owner can set it up like a partnership. This means that a small business owner can be creative and utilize the flexibility of an LLC to their advance. For instance, small business owners often have investors and/or key employees. One of the distinct differences with an LLC and S corporation is the ability to have two types of business ownership. Simply put, an LLC can have voting and non-voting ownership structures. This is a big deal because many small business owners do not want a business partner. Thus, a key employee or an investor can have limited rights with an LLC. This is not possible with ann S corporation because an S corporation only allows one type of stock. YOu cannot have voting and non-voting ownership interets. Again, most small business owners are either uninformed about the benefits of an LLC or will not take advantage of this attribute. Therefore, the S corporation is not a bad alternative.
The second trait is taxation. With an S corporation, a small business pays payroll taxes based upon the payment of a reasonable salary for their industry and considering their circumstances. In contrasts, an LLC pays payroll taxes based upon level of profitability. For example, a small business owner may have $100,000 in profits but re-invest most of these profits. Thus, with an S corporation, a small business owner can limit the payment of payroll taxes by only paying $30,000 of reasonable salary (example not literally). On 8 percent, this could be a significant savings for a small underfinanced business owner.
The third trait are costs. An S corporation has less costs in Illinois than an LLC. In Illinois, the filing fees are $175 for an Corporation. The filing fees for an LLC is $500. Add an additional $100 if you want your business to be recognized by the Illinois Secretary of State within twenty-four hours. The annual maintance fees are comparable to the initial incorporation fees. Thus, an S corporation is significantly less than the LLC. For this reason, the S corporation makes more sense for many small business owners. Again, you should seek a qualified business attorney to counsel you on the basic differences. In your situation, the LLc may be more valuable. Again, choice of business entity is based upon your individual and business circumstances.
Sean Robertson is a business and asset protection attorney. Sean Robertson can be reached at (312) 498-6080 or Sean@RobertsonLawGroup.com. Sean Robertson is a graduate of DePaul University College of Law and University of Illinois at Urbana-Champaign.
Showing posts with label corporate structure S corporation. Show all posts
Showing posts with label corporate structure S corporation. Show all posts
Wednesday, March 9, 2011
Tuesday, March 1, 2011
Corporate Legal Structure and Investments
Today I received a phone call from a prospective client and his question was how do we structure an investment into another business?
Generally, there are two major corporate structures for small to medium sized business owners. The first major corporate structure is an S corporation. An S corporation is a corporation designed for small business owners and is limited to U.S. citizens and less than 100 shareholders. An S corporation only has one type of stock, which is voting stock and the business owners and any investors have the same type of stock.
In contrasts, the second type of major corporate structure is an Limited Liability Corporation ("LLC), which is a combination between a corporation and partnership. An LLC is similar to a partnership because it has the flexibility of a partnership and the liability protection of a corporation. Both an S corporation and LLC are flow through entities, which mean that the shareholders or owners pass taxes as though the corporate entity does not exists. Thus, shareholders and owners pay taxes on their personal income tax form as though the corporation or LLC is disregarded.
Sean Robertson is a corporate and asset protection attorney that concentrates in corporate and LLC structure planning, business law, and general legal counsel for small to medium sized businesses. Sean Robertson can be reached at 312-498-6080.
Generally, there are two major corporate structures for small to medium sized business owners. The first major corporate structure is an S corporation. An S corporation is a corporation designed for small business owners and is limited to U.S. citizens and less than 100 shareholders. An S corporation only has one type of stock, which is voting stock and the business owners and any investors have the same type of stock.
In contrasts, the second type of major corporate structure is an Limited Liability Corporation ("LLC), which is a combination between a corporation and partnership. An LLC is similar to a partnership because it has the flexibility of a partnership and the liability protection of a corporation. Both an S corporation and LLC are flow through entities, which mean that the shareholders or owners pass taxes as though the corporate entity does not exists. Thus, shareholders and owners pay taxes on their personal income tax form as though the corporation or LLC is disregarded.
Sean Robertson is a corporate and asset protection attorney that concentrates in corporate and LLC structure planning, business law, and general legal counsel for small to medium sized businesses. Sean Robertson can be reached at 312-498-6080.
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