Your business plans are finally coming to fruition. You’ve done the research, put out feelers in the community and you are ready for the soft launch of your new business.
The one thing that remains undone, though, is determining the business structure of the company. You’ve narrowed it down to an LLC or an S corp. Which one is better?
Limited liability companies (LLC)
Limited liability companies (LLCs) are business structures that are taxed like sole proprietorships and partnerships, i.e., the owner reports the taxes on their individual tax returns. The major benefit of LLCs is that any business liabilities belong to the business, not the owner.
S corporations (S corp)
With an S corp, as long as the company meets certain requirements, it can pass off any business losses, profits, credits and deductions to the shareholders. Some LLCs qualify as S corps as well, allowing them to be taxed like an S corp.
Main difference between the two
The main takeaway is that LLCs are kinds of business entities, whereas S corporations are tax classifications. Determining which will better serve yourself and your company depends on various factors and goals.
LLCs may be established under other corporate entities. They are a popular choice because they are subject to fewer regulations involving subsidiaries than other business model types.
Learn more before deciding
You want your business to be as successful as possible, so it only makes sense to do your homework first. A business professional can provide guidance and clarity when determining the best business structure for your company.