1. Compare LLC and Corporation
2. LLC and Corporation
3. The Pros of an LLC
4. Cons of an LLC
5. The Advantages of an S Corporation
6. Disadvantages of an S Corporation
7. Deciding Between an LLC or Corporation

Compare LLC and Corporation

“Compare LLC and corporation” refers to a comparison between two business structures. An LLC is a limited liability company which limits its owner’s personal liability. A corporation also has some liability protections. There are many differences, some of which are laid out below.

LLC and Corporation

Deciding between forming an LLC or a corporation is a very common debate for a new business. There are protections for personal liability in both business structures but that is where the similarities end. Each of these particular business structures have specific advantages that should be considered by a savvy business.

Tax strategy, operational needs and business type should all be considered when choosing the business structure that is right for an entity. Each have their specific benefits.  The choice of business structure sets the foundation for a business’ future success. Long and short-term goals can be significantly impacted by the choice, so the choice should be carefully considered. There are many articles written every year on this topic.

The Pros of an LLC

Selecting an LLC over incorporation can be a great choice for your business. The careful consideration of the pros and cons of each form of business is warranted. Some of the time-tested benefits of choosing to become an LLC:

  • The ability to pass losses through to individuals who own the business entity for use on their personal income tax return
  • LLCs do not have to use accrual method of accounting
  • The LLC is able to own real estate
  • LLC management structure is flexible
  • LLCs have fewer ongoing formal requirements
  • Owners of LLCs have some flexibility in the way that they share profits

Cons of an LLC

The news isn’t all good when selecting a LLC as the corporate structure for a business. One should carefully consider the pros and cons of each form of business. There are some drawbacks to LLCs, including:

  • Medicare taxes and Social Security are paid on profits
  • The owners of an LLC are required to recognize profits immediately
  • In some states, LLCs pay higher taxes
  • LLCs must treat some benefits as income subject to taxes
  • LLCs are not able to issue stock

The Advantages of an S Corporation

Selecting incorporation over an LLC can be a great choice for your business. Some of the benefits of choosing to become an S Corporation (after incorporating at the state level) :

S corporation owners are allowed to take business losses as deductions on their personal tax returns

Owners of an S corporation can take business losses and use them to offset non-business income

Disadvantages of an S Corporation

S corporations have a number of restrictions including the following:

  • S corporations can have no more than 100 owners
  • S corporations are not able to have LLCs, C corporations, other S corporations or non-resident aliens as owners
  • Earnings cannot be accumulated from year to year
  • Owners of S corporations are unable to hold different types of stock interests

Deciding Between an LLC or Corporation

A group does not have to form their business as either a corporation or an LLC in the state in which they do business. Any of the 50 states or the District of Columbia can be chosen as a place to incorporate, or to form a LLC. It is important for a new business to weigh the potential advantages and disadvantages of the potential jurisdictions in which the business may be formed. Of course, these advantages and disadvantages may include the requirements to have agents in the state in which you wish to form the business.

In addition, a corporation or LLC may need to make a decision regarding a “doing business as”(DBA). Considerations on this topic include:

  • What are the advantages to the new name?
  • Is the new name allowed?
  • Is the business focus for the named DBA covered by the Articles of Incorporation of the original business?

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