Comparing Florida S-corp. vs. LLC can help you make the best decision when forming a new business. Fully understanding the advantages and disadvantages of each business structure gives you the important information you need for the type of company you wish to start. 

About LLCs

A Limited Liability Company, or LLC, is considered the most simple business entity. Most are single-member LLCs.

This is an ideal business type for anyone wanting to start a small business. LLCs have enjoyed more popularity in the U.S. in recent years. Advantages of forming an LLC include the following:

  • It's inexpensive to establish.
  • It's easy to manage.
  • It offers protection from certain liabilities that stem from company actions.

LLCs give their owners the flexibility of a partnership, while also providing personal liability protection from business debts, the same as a corporation.

To form an LLC in Florida, you file your Articles of Organization with the State. Anonymous LLCs are allowed in Florida, but anonymous corporations are not.

LLCs are pass-through entities, which means business profits pass to the owners through the company. Owners are responsible for paying taxes on their personal returns. If your LLC business is subject to any court rulings, debts, or losses, your personal assets are protected.

Individual members, or owners, of an LLC get a percentage of company profits. The amount depends on each person's ownership share. Each member then reports the income (minus deductible company expenses) on a personal tax return, so taxes are implemented at the individual level, not the business level.

Owners report a loss if the company loses money, and profits are only taxed once.

There are few formalities that LLCs have to deal with. LLCs that are properly formed and run properly provide their owners protection from personal liability. It also allows for multiple owners without a lot of bureaucracy.

Some LLC Drawbacks to Consider

If the company generates a lot of money, it's subject to self-employment tax and considered ordinary income. Self-employment tax is one of the drawbacks to an LLC.

Taxes must be paid on all profits. Tax rates for LLCs may be higher than rates for corporations.

LLCs may have limited lives as well. Unless you specifically address what happens if a member leaves the LLC, the departure of a member can dissolve the company.

About S-Corporations

You might consider an S-corporation to be a cross between a C-corp. and an LLC. An S-corp. enjoys certain tax benefits. It's a “closed” corporation with a limited number of shareholders.

An S-corp. isn't technically a business structure, such as a corporation or LLC. Instead, it's a tax designation.

The biggest advantage that an S-corp. has over an LLC is the owners' ability to pay themselves a reasonable salary (it's still subject to withholding requirements and FICA tax). Owners can then distribute any remaining net earnings as passive dividend income, which isn't subject to self-employment tax.

LLCs can choose to be classified as S-corps to enjoy the tax benefits. Business owners can take advantage of the following benefits when they elect to have their LLC treated as an S-corp.: 

  • More flexibility of administration.
  • Flexibility with business income and tax treatment.

Shareholders in S-corps have liability protection because only their invested money is at risk. Their personal assets remain protected, the same as LLCs. While S-corps aren't taxed, their shareholders are. While each partner in an S-corp. is responsible for paying personal taxes on income from the S-corp., the business itself is not taxed.

Some people look at S-corps as being more legitimate business types. Investors may consider this business structure to be more permanent compared to an LLC. Corporations can sell stock to raise money, and S-corps are able to do this. In contrast, LLCs are only able to sell interests in their business.

Most people want as many advantages as they can gain when forming a business. Weigh your options carefully when deciding which business type you'd like to form. Although S-corps appear more advantageous than LLCs in some areas, it really depends on the industry you're in. You don't have to make things more complicated for yourself than they need to be, so the simplest structure could be perfect for you.

If you need help with deciding between a Florida S-corp. and LLC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.