LLC vs S-Corp...now I get why I got C+ in starting a small business

ironically I recently found my old college transcript- where I got a C+ in starting a small buiness- so that is weighing heavily on me now as I am trying to figure out things for my business

Can anyone explain to me why the formed an S-corp vs an LLC or a LLC vs. an S-Corp.....

I will be the only shareholder....but I will have employees....

Re: LLC vs S-Corp...now I get why I got C+ in starting a small business

We formed an S-corp

They are both pass through entities, you do not pay any tax at the s-corp or llc level, the income or loss flows through to your personal return

and there are 2 chances of an s-corp getting audited - slim and none

here is some more info

link

Message edited 2/26/2009 4:57:04 PM.

Re: LLC vs S-Corp...now I get why I got C+ in starting a small business

I found this online, don't know if it helps:

The most common decision for smaller start up companies is whether to form a LLC or corporation with a "s election". Both entities have many similarities such as limited liability protection of personal assets against lawsuits and debts. However, there are several differences, especially in regards to taxation. Although there is a lot of information regarding s-corporations and LLC's in general, there is very little available that breaks down the important differences. Below I have summarized the major characteristics and issues associated with each entity:


I. S-Corporation
A. Liability

1. Shareholders granted personal protection from debts and liabilities of business (like c-corp and LLC)
B. Taxation

Pass through: Profits and losses pass through the corp and reported to the individual tax return of shareholder (same as partnership and LLC)

Self-Employment Tax Break: Profits of the S-Corp which pass through to the shareholders are not subject to self-employment tax (Social Security and Medicare which is approximately 15%). Rather, self-employment is only taxed on the portion classified as a "reasonable salary". LLCs and sole-proprietorships must pay self-employment tax on all income. The ability to minimize self-employment tax is deemed to be one of the greatest benefits of a s-corporation.

Corporate Losses: losses in the corporation can be deducted from the individual tax returns of the shareholder thereby allowing them to offset other sources of income such as their W-2 income.

Franchise Tax: Franchise Tax is waived your first year. LLC on the other hand, must pay franchise tax its first year. S-Corp must pay the CA Franchise Tax board either a 1.5% tax on net CA income or $800, whichever is greater.

Distribution of Profits and Losses: No special allocation of profit and losses for shareholders. Corporate profits and losses must be split up proportionately to the percentage of shares owned by each shareholder. LLC's on the otherhand allow for flexibility as to how they split their profits and losses.

C. Formalities

Must file an S-Corporation annual income tax return each year (IRS Form 1120S)

Must file annual report with Secretary of State, and a reporting fee of $25 and a statement of information are required 90 days after formation.

Must maintain corporate formalities such as: Drafting Bylaws, Minutes, Annual Meetings, issuance of stock, to keep a paper a trail of financial dealings between the corporation and its shareholders, and to avoid "piercing of the corporate veil."
D. Other Characteristics

No more than 100 shareholders

Shareholders must be US citizens or have US residency status

Shareholders must be individuals (not corporations or partnerships)

Only one class of stock (but different voting rights permitted, and same rights to participate in dividends and sale of assets)

Owners are called "shareholders"
II. LLC
A. Liability: shareholders granted personal protection from debts and liabilities of business (like s and c-corp)

B. Taxation

Pass through: Profits and losses pass through the LLC and reported to the individual tax return of shareholder (same as partnership and Corps).

Self-Employment Tax: LLC members must pay self-employment tax on all income from the LLC.

LLC Losses: losses in the LLC can be deducted from the individual tax returns of the member thereby allowing them to offset other sources of income such as their W-2 income.

Franchise Tax: Must pay first year minimum annual tax of $800, and is due 75 days after formation and every year thereafter. Annual franchise tax is greater if total reported income is greater than $250,000. See http://www.ftb.ca.gov/forms/06_forms/06_3522.pdf.

Distribution of Profits and Losses: It is flexible since an LLC allows you to decide what share of the LLC profits and losses each owner will receive.
C. Formalities

Very little formalities required. Operating agreement is recommended, annual meetings not required.

A reporting fee of $25 and a statement of information are required 90 days after formation and then every two years.
D. Other Characteristics

Licensed professional in California must form a Professional Corporation instead.

Owners are called "members"

Members may be individuals or separate legal entity such as a corporation.

Member's investment receives a percentage ownership interest in return. Percentage ownership determines how profit and losses are split up.
Copyright 2006 Michael N. Cohen, Esq.

This article is not intended as a substitute for legal advice. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. You should consult with an attorney familiar with the issues and the laws.



Results of Google Search

Re: LLC vs S-Corp...now I get why I got C+ in starting a small business

Message edited 11/23/2011 5:12:50 PM.

Re: LLC vs S-Corp...now I get why I got C+ in starting a small business

Posted by imthekevinofcindyandkevin

this post does not instill confidence Beth



J/K

Re: LLC vs S-Corp...now I get why I got C+ in starting a small business

Beth, do yourself a favor and have a lawyer who specializes in small startups give you this advice, as these things vary from state to state and your needs may be different than someone else's. It will be worth every cent.

Our real estate holding company was formed as an LLC for various reasons, but that may or may not work for you and whatever your business is. Talk to a lawyer. It'll be an easier process, too.

Good luck!

Re: LLC vs S-Corp...now I get why I got C+ in starting a small business

my DH has a business and its an S corp
It was the best thing for the business
he is the sole owner with employees

Re: LLC vs S-Corp...now I get why I got C+ in starting a small business

I was recently eavesdropping on a course about helping clients select the right business entity . I was in the next room at a meeting. There are a lot of nuances. I would ask both an accountant and a lawyer who does this type of work. Let me know if you want the name of an attorney.