Show Start » StrategyBecoming an S corp versus an LLC can impact numerous facets of your business operations, including ownership structure and taxation.
When entrepreneurs choose a legal entity and tax classification for their business, it’s best to familiarize themselves with all the available options to find the one that is best for the business in the long run. Read on to discover the difference between an S corp and an LLC, and how to determine which option may be best for your business. What is an S corp?An S corp (also known as an S corporation) describes a tax classification that “passes corporate income, losses, deductions, and credits through to shareholders for federal tax purposes.” To become an S corp, businesses must meet certain criteria, including being a domestic corporation; having no partnerships, corporations, or nonresident alien shareholders; having no more than 100 shareholders; and having only one class of stock — among other requirements. To become an S corp, businesses must submit Form 2553 Election by a Small Business Corporation signed by all the shareholders. The advantages of becoming an S corp include:
S corps also have disadvantages for business owners, including:
[Read more: 5 Types of Organizational Structures for Small Businesses] What is an LLC?A limited liability company or LLC is a business structure that offers the protection of a corporation, as well as the efficiency and cost of a sole proprietorship or partnership. LLCs are often easier to operate than traditional corporations because they don’t require a full board of directors, numerous shareholders, or strict guidelines to keep LLC status. According to the IRS, LLC regulations differ by state. Your specific business, financial, and lifestyle goals can help determine whether an S corp or an LLC is the right choice for you. The advantages of becoming an LLC include:
The disadvantages of becoming an LLC include:
[Read more: Tax Impact on LLCs, Partnerships and S Corporations] S corp vs. LLC: Which is right for you?Your specific business, financial, and lifestyle goals can help determine whether an S corp or an LLC is the right choice for you. Here are some key factors to consider.
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