An S Corp is a tax classification that\u2019s available to some small businesses. If you choose to file as an S Corp, you\u2019ll reap the operational benefits of being a corporation and the tax benefits of a partnership. It\u2019s the best of both worlds.<\/p>\n\n\n\n
To become an S Corp, your business must first register as a C Corp or an LLC. Then, there are specific guidelines laid out by the Internal Revenue Service (IRS) that must be met to qualify as an S Corp. These include having 100 shareholders or less, being American owned and operated, and having just one class of stock.
<\/p>\n\n\n\n
<\/span>What is an LLC? <\/strong><\/span><\/h2>\n\n\n\nAn LLC is a legal designation that\u2019s used when forming a business. Because an LLC is considered a separate entity, it can protect small business owners from personal liability in business obligations.<\/p>\n\n\n\n
The owners of an LLC are called members, and LLCs can be single-member or multiple-member owned.<\/p>\n\n\n\n
It is important as an LLC that you have a business bank account<\/a> that is separate from your personal account. This account should be accessible to all business owners.\u00a0<\/p>\n\n\n\n<\/div>\n\n\nApply for an Account<\/span><\/a><\/span><\/span>\n\n\n<\/div>\n\n\n\n<\/span>What is the Difference Between an LLC and an S Corp? <\/strong> <\/span><\/h2>\n\n\n\n<\/span>What Are the Similarities Between an LLC and an S Corp? <\/span><\/h3>\n\n\n\nBoth LLCs and S Corps establish your business as a separate entity from yourself. This can protect your personal assets from the company\u2019s debts. Both also offer the ability to avoid double taxation when filing your business taxes<\/a>.<\/p>\n\n\n\nLLCs and S Corps are regulated by certain state compliance laws, which can vary depending on the state.<\/p>\n\n\n\n
<\/span>What Are the Differences Between an LLC and an S Corp? <\/span><\/h3>\n\n\n\nNow that we\u2019ve looked at some of the ways LLCs and S Corps are similar, let\u2019s explore some of the key differences. <\/p>\n\n\n\n
\n- Ownership<\/strong><\/li>\n<\/ol>\n\n\n\n
An LLC operates much like a sole proprietorship or partnership, but an LLC can have an unlimited number of owners from all over the world. An S Corp, on the other hand, is restricted to 100 owners or less, and they must all be US citizens. This makes owning an LLC much more flexible than an S Corp.<\/p>\n\n\n\n
If the owner of an S Corp passes away, ownership can be transferred to an heir. With an LLC, however, existence is limited. Typically, if an owner passes, an LLC would be dissolved and would need to be reregistered under a new owner.<\/p>\n\n\n\n
2. Length of Structure\u2019s Existence<\/strong><\/p>\n\n\n\nWith an S Corp, if the original owner passes away, ownership can be transferred to an heir. With an LLC, existence is limited. Typically, the business would be dissolved if the owner passes, or goes bankrupt. The business would have to be reregistered with a new owner. <\/p>\n\n\n\n
3. Owner pay<\/strong><\/p>\n\n\n\nAnother difference between an S Corp and LLC is how owners are paid. S Corps can employ their owners and pay them a salary, while owners of an LLC take portions of profits, which doesn\u2019t withhold income tax.<\/p>\n\n\n\n
4. Tax<\/strong><\/p>\n\n\n\nAn LLC allows the business\u2019s income or losses to pass through the business and are instead recorded on the owner\u2019s personal tax return. This is also known as pass-through taxation. LLCs can also choose to be taxed as a C or S corp if they meet the eligibility requirements.<\/p>\n\n\n\n
Similarly, S Corps are not subject to corporate income tax and all profits pass through the company. However, while S Corps file Form 1120S, LLCs should file Schedule C, Form 1065, Form 1120S, or Form 1120, depending on the number of owners.<\/p>\n\n\n\n
5. Operation<\/strong><\/p>\n\n\n\nA corporation, like an S Corp, is governed by a board of directors who make high-level strategic decisions for the business. There is a set of bylaws in place and elected officers who manage the day-to-day operations.<\/p>\n\n\n\n
LLCs tend to be more flexible. They\u2019re run by managers according to an \u201coperating agreement\u201d. Owners of an LLC can choose to either participate in management or hire managers to take on that responsibility. Officer roles can also be appointed if it makes sense with the business plan.
<\/p>\n\n\n\n
<\/span>Should Your Business Be an LLC or an S Corp? <\/strong><\/span><\/h2>\n\n\n\nNow that we\u2019ve broken down the similarities and differences between an LLC and an S Corp, it\u2019s time to decide which is the best option for your business. To help you do this, we\u2019ll be breaking down the pros and cons of each business structure. <\/p>\n\n\n\n
<\/span>Becoming an S Corp<\/span><\/h3>\n\n\n\n<\/span>Pros<\/strong><\/span><\/h4>\n\n\n\nOne of the biggest attractions of an S Corp are the tax benefits. The profits and losses of the business pass through the business owners, you don\u2019t pay corporate income tax, which means you avoid double taxation. Instead, shareholders split up the income and report it on their personal tax returns. This can save business owners money, which could be a big help if you\u2019re just starting out.<\/p>\n\n\n\n
<\/span>Cons<\/span><\/h4>\n\n\n\nThe biggest disadvantage of S Corps, when compared to LLCs, is the lack of flexibility in how they operate. There are strict operating guidelines to follow, including a limited number of allowed shareholders, restrictions on citizenship, and more. It\u2019s also worth noting that it can be costly to file as an S Corp.
<\/p>\n\n\n\n
<\/span>Becoming an LLC<\/span><\/h3>\n\n\n\n<\/span>Pros<\/span><\/h4>\n\n\n\nGenerally speaking, LLCs are more flexible and simpler to set up than S Corps. The operating guidelines are more flexible, so you\u2019re free to organize your business in a way that suits your goals and needs. It also tends to be cheaper to file as an LLC vs S Corps. If there is only one owner of the LLC, they don\u2019t need to file a tax return for their business. Instead, they just fill out a personal tax return. There are also many LLC banking benefits<\/a> for your business.<\/p>\n\n\n\n<\/span>Cons<\/span><\/h4>\n\n\n\n
<\/span>What is the Difference Between an LLC and an S Corp? <\/strong> <\/span><\/h2>\n\n\n\n<\/span>What Are the Similarities Between an LLC and an S Corp? <\/span><\/h3>\n\n\n\nBoth LLCs and S Corps establish your business as a separate entity from yourself. This can protect your personal assets from the company\u2019s debts. Both also offer the ability to avoid double taxation when filing your business taxes<\/a>.<\/p>\n\n\n\nLLCs and S Corps are regulated by certain state compliance laws, which can vary depending on the state.<\/p>\n\n\n\n
<\/span>What Are the Differences Between an LLC and an S Corp? <\/span><\/h3>\n\n\n\nNow that we\u2019ve looked at some of the ways LLCs and S Corps are similar, let\u2019s explore some of the key differences. <\/p>\n\n\n\n
\n- Ownership<\/strong><\/li>\n<\/ol>\n\n\n\n
An LLC operates much like a sole proprietorship or partnership, but an LLC can have an unlimited number of owners from all over the world. An S Corp, on the other hand, is restricted to 100 owners or less, and they must all be US citizens. This makes owning an LLC much more flexible than an S Corp.<\/p>\n\n\n\n
If the owner of an S Corp passes away, ownership can be transferred to an heir. With an LLC, however, existence is limited. Typically, if an owner passes, an LLC would be dissolved and would need to be reregistered under a new owner.<\/p>\n\n\n\n
2. Length of Structure\u2019s Existence<\/strong><\/p>\n\n\n\nWith an S Corp, if the original owner passes away, ownership can be transferred to an heir. With an LLC, existence is limited. Typically, the business would be dissolved if the owner passes, or goes bankrupt. The business would have to be reregistered with a new owner. <\/p>\n\n\n\n
3. Owner pay<\/strong><\/p>\n\n\n\nAnother difference between an S Corp and LLC is how owners are paid. S Corps can employ their owners and pay them a salary, while owners of an LLC take portions of profits, which doesn\u2019t withhold income tax.<\/p>\n\n\n\n
4. Tax<\/strong><\/p>\n\n\n\nAn LLC allows the business\u2019s income or losses to pass through the business and are instead recorded on the owner\u2019s personal tax return. This is also known as pass-through taxation. LLCs can also choose to be taxed as a C or S corp if they meet the eligibility requirements.<\/p>\n\n\n\n
Similarly, S Corps are not subject to corporate income tax and all profits pass through the company. However, while S Corps file Form 1120S, LLCs should file Schedule C, Form 1065, Form 1120S, or Form 1120, depending on the number of owners.<\/p>\n\n\n\n
5. Operation<\/strong><\/p>\n\n\n\nA corporation, like an S Corp, is governed by a board of directors who make high-level strategic decisions for the business. There is a set of bylaws in place and elected officers who manage the day-to-day operations.<\/p>\n\n\n\n
LLCs tend to be more flexible. They\u2019re run by managers according to an \u201coperating agreement\u201d. Owners of an LLC can choose to either participate in management or hire managers to take on that responsibility. Officer roles can also be appointed if it makes sense with the business plan.
<\/p>\n\n\n\n
<\/span>Should Your Business Be an LLC or an S Corp? <\/strong><\/span><\/h2>\n\n\n\nNow that we\u2019ve broken down the similarities and differences between an LLC and an S Corp, it\u2019s time to decide which is the best option for your business. To help you do this, we\u2019ll be breaking down the pros and cons of each business structure. <\/p>\n\n\n\n
<\/span>Becoming an S Corp<\/span><\/h3>\n\n\n\n<\/span>Pros<\/strong><\/span><\/h4>\n\n\n\nOne of the biggest attractions of an S Corp are the tax benefits. The profits and losses of the business pass through the business owners, you don\u2019t pay corporate income tax, which means you avoid double taxation. Instead, shareholders split up the income and report it on their personal tax returns. This can save business owners money, which could be a big help if you\u2019re just starting out.<\/p>\n\n\n\n
<\/span>Cons<\/span><\/h4>\n\n\n\nThe biggest disadvantage of S Corps, when compared to LLCs, is the lack of flexibility in how they operate. There are strict operating guidelines to follow, including a limited number of allowed shareholders, restrictions on citizenship, and more. It\u2019s also worth noting that it can be costly to file as an S Corp.
<\/p>\n\n\n\n
<\/span>Becoming an LLC<\/span><\/h3>\n\n\n\n<\/span>Pros<\/span><\/h4>\n\n\n\nGenerally speaking, LLCs are more flexible and simpler to set up than S Corps. The operating guidelines are more flexible, so you\u2019re free to organize your business in a way that suits your goals and needs. It also tends to be cheaper to file as an LLC vs S Corps. If there is only one owner of the LLC, they don\u2019t need to file a tax return for their business. Instead, they just fill out a personal tax return. There are also many LLC banking benefits<\/a> for your business.<\/p>\n\n\n\n<\/span>Cons<\/span><\/h4>\n\n\n\n
Both LLCs and S Corps establish your business as a separate entity from yourself. This can protect your personal assets from the company\u2019s debts. Both also offer the ability to avoid double taxation when filing your business taxes<\/a>.<\/p>\n\n\n\n LLCs and S Corps are regulated by certain state compliance laws, which can vary depending on the state.<\/p>\n\n\n\n Now that we\u2019ve looked at some of the ways LLCs and S Corps are similar, let\u2019s explore some of the key differences. <\/p>\n\n\n\n An LLC operates much like a sole proprietorship or partnership, but an LLC can have an unlimited number of owners from all over the world. An S Corp, on the other hand, is restricted to 100 owners or less, and they must all be US citizens. This makes owning an LLC much more flexible than an S Corp.<\/p>\n\n\n\n If the owner of an S Corp passes away, ownership can be transferred to an heir. With an LLC, however, existence is limited. Typically, if an owner passes, an LLC would be dissolved and would need to be reregistered under a new owner.<\/p>\n\n\n\n 2. Length of Structure\u2019s Existence<\/strong><\/p>\n\n\n\n With an S Corp, if the original owner passes away, ownership can be transferred to an heir. With an LLC, existence is limited. Typically, the business would be dissolved if the owner passes, or goes bankrupt. The business would have to be reregistered with a new owner. <\/p>\n\n\n\n 3. Owner pay<\/strong><\/p>\n\n\n\n Another difference between an S Corp and LLC is how owners are paid. S Corps can employ their owners and pay them a salary, while owners of an LLC take portions of profits, which doesn\u2019t withhold income tax.<\/p>\n\n\n\n 4. Tax<\/strong><\/p>\n\n\n\n An LLC allows the business\u2019s income or losses to pass through the business and are instead recorded on the owner\u2019s personal tax return. This is also known as pass-through taxation. LLCs can also choose to be taxed as a C or S corp if they meet the eligibility requirements.<\/p>\n\n\n\n Similarly, S Corps are not subject to corporate income tax and all profits pass through the company. However, while S Corps file Form 1120S, LLCs should file Schedule C, Form 1065, Form 1120S, or Form 1120, depending on the number of owners.<\/p>\n\n\n\n 5. Operation<\/strong><\/p>\n\n\n\n A corporation, like an S Corp, is governed by a board of directors who make high-level strategic decisions for the business. There is a set of bylaws in place and elected officers who manage the day-to-day operations.<\/p>\n\n\n\n LLCs tend to be more flexible. They\u2019re run by managers according to an \u201coperating agreement\u201d. Owners of an LLC can choose to either participate in management or hire managers to take on that responsibility. Officer roles can also be appointed if it makes sense with the business plan. Now that we\u2019ve broken down the similarities and differences between an LLC and an S Corp, it\u2019s time to decide which is the best option for your business. To help you do this, we\u2019ll be breaking down the pros and cons of each business structure. <\/p>\n\n\n\n One of the biggest attractions of an S Corp are the tax benefits. The profits and losses of the business pass through the business owners, you don\u2019t pay corporate income tax, which means you avoid double taxation. Instead, shareholders split up the income and report it on their personal tax returns. This can save business owners money, which could be a big help if you\u2019re just starting out.<\/p>\n\n\n\n The biggest disadvantage of S Corps, when compared to LLCs, is the lack of flexibility in how they operate. There are strict operating guidelines to follow, including a limited number of allowed shareholders, restrictions on citizenship, and more. It\u2019s also worth noting that it can be costly to file as an S Corp. Generally speaking, LLCs are more flexible and simpler to set up than S Corps. The operating guidelines are more flexible, so you\u2019re free to organize your business in a way that suits your goals and needs. It also tends to be cheaper to file as an LLC vs S Corps. If there is only one owner of the LLC, they don\u2019t need to file a tax return for their business. Instead, they just fill out a personal tax return. There are also many LLC banking benefits<\/a> for your business.<\/p>\n\n\n\n<\/span>What Are the Differences Between an LLC and an S Corp? <\/span><\/h3>\n\n\n\n
\n
<\/p>\n\n\n\n<\/span>Should Your Business Be an LLC or an S Corp? <\/strong><\/span><\/h2>\n\n\n\n
<\/span>Becoming an S Corp<\/span><\/h3>\n\n\n\n
<\/span>Pros<\/strong><\/span><\/h4>\n\n\n\n
<\/span>Cons<\/span><\/h4>\n\n\n\n
<\/p>\n\n\n\n<\/span>Becoming an LLC<\/span><\/h3>\n\n\n\n
<\/span>Pros<\/span><\/h4>\n\n\n\n
<\/span>Cons<\/span><\/h4>\n\n\n\n
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