All You Need to Know About Starting an LLC vs. S Corp in Dallas
When entrepreneurs in Dallas consider starting a new business, they need to understand the differences between an LLC vs3 min read
When entrepreneurs in Dallas consider starting a new business, they need to understand the differences between an LLC vs. S Corp. These two corporate structures have different characteristics and obtaining the right advice early can save entrepreneurs time and money involving start-up costs and taxes. Knowing the advantages and disadvantages of each will help ensure choosing the right entity for their business.
LLCs, S Corps, and other corporate entities are formed in much the same way. This includes filing the articles of incorporation or organization, following organizational protocol, and obtaining the required licenses and permits. After these steps are taken, business owners need to consider the benefits and drawbacks of selecting an LLC vs. S Corp to determine the best course of action for their company.
Overview of LLCs vs. S Corps
Both LLCs and S Corps offer the same benefits and are similar in many ways, including protection of the owner’s personal assets from business liabilities. Previously, S Corps were the preferred choice because of the tax treatment benefits but recent tax law changes have made both entities equally beneficial.
LLCs are the most common type of corporate entity because of their simplicity and flexibility. LLCs are easy to set up and are suitable for many types of businesses. LLCs also offer pass-through taxation, meaning that income and losses flow through to the owners who are responsible for paying taxes.
S Corps also have pass-through taxation but there are additional advantages to an S Corp, including possible tax savings on owner compensation and self-employment taxes, the ability to sell private company stock, fewer restrictions on ownership and operations, and other tax and administrative considerations.
LLC Advantages in Dallas
An LLC doesn’t require members to make their interests public, allowing the business to remain private. Additionally, in an LLC, owners are not responsible for debts or obligations to the company, and if something happens to the member, the LLC will not be affected.
Other advantages to setting up an LLC in Dallas include the added flexibility of the corporate entity structure, the ability to manage the company based on the desires of its members, and the ability to change the rights and responsibilities of members with relative ease. In most cases, as long as the majority of members agree, any changes desired may be made quickly and inexpensively.
S Corp Advantages in Dallas
An S Corp does have some advantages over an LLC in Dallas such as higher contributions to retirement plans for the owners and shareholders, cost savings on taxes from the S Corp’s election for salary and will not be responsible to pay estimated self-employment taxes (SECA) as well as potential additional tax deductions. An S Corp may also make it easier for owners and shareholders to find potential investors or buyers for the company’s assets.
One of the main selling points of an S Corp in Dallas is that it doesn't have to take on many of the similar restrictions that apply to an LLC, such as limits on numbers of shareholders, number of classes of stock and the restrictions of transfer of ownership. Furthermore, the rights and responsibilities of shareholders can be adjusted more easily and quickly in an S Corp than in an LLC.
LLC vs S Corp: Which is Right for You?
Although structural differences between LLCs and S Corps mean they can be used differently, the decision on which to choose should be made after carefully weighing all the factors. An experienced lawyer with expertise in business formation in Dallas, such as those at UpCounsel, can provide invaluable help in deciding which corporate entity best fits your needs.
When it comes to choosing the right corporate structure, the goals and needs of an individual or business should be the deciding factor, and the right advice can make all the difference.