LLC vs S Corp

Hi Eugene. I'm not new here (just been out of commission for a while). Here is some great info that Helped me. I hope it'll help you. Good luck.

How to Incorporate:Limited Liability Companies(LLCs)vs. S Corporations:

When entrepreneurs consider how to incorporate when starting a business, or when existing small business owners consider changing their business structure, they are often evaluating between the limited liability company (LLC) and the S corporation as the entity type for their business.

As your learn how to incorporate, you will see LLCs and S corporations have some similarities, most notably limited liability protection for owners and pass-through taxation, they also have a number of distinct differences. If you are one of the business owners trying to form a corporation, this article will help you compare LLCs and S corporations a little more closely.

Similarities:
1.Both offer the same limited liability protection for owners, meaning that the owners are typically not personally responsible for the debts and liabilities of the business.

2.Both are separate legal entities created by a state filing.

3.Both are typically pass-through tax entities. While both entities file business tax returns, the profit or loss of the business is passed-through to the owners’ personal tax returns, where it is reported and any necessary tax paid at the individual level.

4.Both are subject to external formalities, such as filing annual reports, which are required by the state, and paying necessary annual fees.

The Differences:
1. Ownership
The Internal Revenue Service (IRS) restricts ownership of S corporations, while LLCs do not face the same restrictions. Some of the IRS restrictions include:
LLCs can have an unlimited number of members (owners) while S corporations can have no more than 100 shareholders (owners).
Non-US residents can be members of LLCs, while S corporations may not have non-US residents as shareholders.
S corporations cannot be owned by C corporations, other S corporations, LLCs, partnerships, or many trusts. LLCs are not subject to these same restrictions.

2. LLCs are allowed to have subsidiaries without restriction.

3. Ongoing Formalities:
S corporations face more extensive internal formalities, including adopting bylaws, issuing stock, holding initial and then annual meetings of directors and shareholders, and keeping the minutes of these meetings with the corporate records.
While LLCs are not subject to the same internal formalities, they are encouraged to adopt an operating agreement, issue membership shares, hold and document annual meetings of the managers and/or members, and properly document all major decisions of the company.

4. Management:
The management of an LLC can be by members, in which case the management is much like that of a partnership. If the management of an LLC is by managers, then the management structure more closely resembles that of a corporation, since the members will not be involved in the daily business decisions of the company.
S corporations have directors and officers. The board of directors oversees and directs the affairs of the corporation and has responsibility for major decisions, but is not responsible for the day-to-day operations of the corporation. The directors elect officers to manage the daily affairs of the business.

5. An S corporation’s existence is perpetual. Conversely, some states require LLCs to list a dissolution date in the formation documents (typically called the articles of organization or a certificate of organization), and certain events, such as death or withdrawal of a member, can cause the LLC to dissolve.

6. The stock of an S corporation is freely transferable, as long as IRS ownership restrictions are met. The membership interest (ownership) of an LLC typically is not. Approval of the other members must be received.

Hi Great2BeRich,

Thank you for a very imformative dissemination between an LLC and an S corp.

A new tidbit that is perking it's head is the FLP (Florida Limited Partnership) which appears to be a Family Trust where the general partner is an LLC in which one of the family members is the active member.

Do you have any information that you could supply on this structure?

Best regards,

Fanbot

Hi Fanbot,

Hey, glad to help. Here's some info on a FLP & a FLLP (Florida Limited Liability Partnership). Interesting entities; I will have to look into these a little more.

All the best,

Charles

Florida limited partnerships have two types of partners, limited partners and general partners. General partners are personally responsible for the liabilities incurred by the partnership. Limited partners are generally partners who want to invest in the partnership but do not desire direct involvement in its management. Therefore, their liability is solely restricted to the amount of their investment. As with general Florida partnerships, partners in limited partnerships can enter into a Florida partnership agreement that will set out the parameters for running the Florida partnership.

Florida Limited Liability Partnerships (LLPs) are partnerships that engage in the practice of public accountancy, the practice of law or the practice of architecture. They can be formed by two or more partners who are licensed to practice in the field of the partnership. LLPs must register with the state. LLP registration affords liability limitation as to the acts of your partners, but not as to your own. LLPs are subject to minimum security requirements which can be satisfied if the LLP's worth meets a statutory minimum or if each partner obtains a required amount of insurance. As with the other types of partnerships, the partners can enter into a partnership agreement regarding the management of the firm.

Great,great info and it was all for free, I love it. Jeremy and I are soon to meet with a lawyer to talk about a corporation or an LLC. We are entering into our 3rd deal and have been operating as individuals. I know of the benefits for securing financing for future deals are much better in favor of an LLC or Corp as opposed to individuals. With our 3rd deal about to go to ink(WATCH FOR THE POST) it is time that we sit and discuss our future with an attorney and or accountant. Thanks so much for your invaluable input....Jan

My pleasure Jan! I'm excited for you! I'll be looking for your post (soon I hope).

All the best,

Charles

Thanks for the info on the FLP and FLLP.

Best regards,

Fanbot

Go with an LLC (taxed as an S-Corp) and you won't go wrong. I would avoid any LP. I just don't understand why you'd go with an LP if an LLC is so easy to set up and manage and provides much more personal asset protection.

Like my partner Jan said, thank you so much for this great info. We are trying to figure out what will be best. We've been recommended to go with a corp, but are not 100% sure yet. When we sit down with lawyer I think we will have a decision made, we are at that point where we need to open either/or.

Jeremy

LLC is the way to go in our business, It is also better to have a partner
( anyone in the house) as apposed to a single ownership, for tax reasons. Laura and I sat in on a guy named AL Aiello who is the guru of tax strategies, he recommended LLC partnership. His program is expensive but worth it once you are established. I was really impressed at all the things he showed us in a short period of time. Your tax guy probably doesn't know half of what he can do according to Al.

I need help understanding whether I was given incorrect information. I was told that LLC's could not do real estate transactions in other states. Is That true?

Hi B.C.

Albert is correct. If it is a single member LLC or husband and wife partnership you may as well not do the LLC. Two non-related enties within the LLC as a minimum is best.

Regards,

Fanbot