Here is a little synopsis about the LLC and S-Corp. A sole proprietorship and /or partnership are not options that you should consider at all.
Differences and similarities between Determining the right business model for any business entrepreneur is an uphill task. With increasing numbers of competitive business models coming up everyday, there are a number of complexities that each model has. So people often go for researches while making investments and one popular term that comes up is S Corp. Now what is this S Corp?
Most people are even unaware that it is one of the most preferred business models are after LLC (Limited Liability Corporation). So herein are enlisted some similarities and differences between LLC and S Corp. LLC vs. S Corp will not only give you a better insight but also help you to gain information about the two. It would also help you decide which will be the best investment for you.
Now both S Corp and LLC are similar in many respects but also there are important distinctions between the two. They are similar because both of them act as pass through agent to escape from taxes. Income earned through these entities is reported to the personal income tax return. Thus, there are no chances of double crossing that other corporations have to pay if they make such investigations.
The first difference between the S Corp. and the LLC is that S Corp has a limit to the number of shareholders; it cant hold more than 75 shareholders. Also, no one among these shareholders should be a non resident alien. Moreover, the functioning and operation of an S Corp is very similar to that of a standard corporation. It must complete the host of formalities and also keep regular records. The profits in an S Corp are divided by the directors of the organization according to the ratio of ownership of stocks. But in a LLC, the scene is completely different. It offers much flexibility and also there are no stringent rules regarding operations of the organization.
Most importantly, there are no ownership issues in a LLC. There are no limits to the number of holders also. And individual owners can even attend management meetings in an LLC. Most of the functional duties of an LLC are delegated to managers. These managers may not also be owners of the LLC.
Another important difference between LLC and S Corp is regarding employment tax. Those who own an LLC are considered as self employed and are required to pay a self employment tax of 15.3 percent of the entire income. Whereas in case of S Corp, the
income that is paid to employee- owner comes under the purview of employment tax.
This way, there are plenty of options to save.
Thus, in the battle between LLC v. S corp, it is your unique needs that determine the winner. If you are looking for easy usage and flexibility, then LLC is the choice for you. But if you want savings to be your priority, then your choice should be for S corporation.