One advantage an LLC has over an S corp is a lessened paperwork burden. But, this is far from the only potential advantage. Entrepreneurs may want to think choosing an LLC over an S corp structure; this allows enjoyment of benefits such as asset protection without a lot of red tape.
LLC stands for runt liability company and is legally a business structure that can succor protect your personal assets. One advantage this structure has is the ability to experience tax benefits similar to a full-fledged corporation, according to the book fabricate Your gain exiguous Liability Company authored by Anthony Mancuso. Entrepreneurs may wish to deem long and hard about whether they really want to deal with a fleshy S corp structure when they can experience tax benefits and asset protection–with less potential drama–doing business as a LLC.
Some people determine to work as sole proprietors. The risks of that choice are outlined in the sparkling Hub article Four Advantages of a Corporation over other Organizational Forms.
One advantage an LLC has over an S corp is a simpler structure and a lot less paperwork to handle from the beginning.
Any corporation requires shareholders and a board of directors, and an S corp is no exception. The directors are expected to have annual meetings. Paperwork supporting these meetings–basically minutes taken by a recording secretary–is usually filed each year with the appropriate Secretary of location.
Creating and filing an articles of incorporation–not required for an LLC but required for an S corp–could be another potential headache for a beginning entrepreneur. This is a mandatory step for a company seeking official S corp position. Many times those pursuing a formal incorporated structure turn the task over to an attorney or a document preparation service because of the intricacies enthusiastic in the process.
An S corp has a number of limitations on how many stocks can be made available as well as objective who the shareholders can be. However, the LLC does not have such moral limitations.
If you actually acquire an S corp, your company can only have 100 shareholders. Additionally, only one class of stock is permitted. The LLC does not have these limitations, creating another advantage for those grappling with the narrate of whether or not to actually pursue a burly S corp structure.
Another potential advantage an LLC structure has over an S corp is regarding U.S. citizenship. All shareholders must be factual U.S. residents or citizens. While this may seem easy to control, hold this in mind. If one of your shareholders dies and leaves his section to a child or spouse who is not a U.S. citizen, your corporation could automatically lose its corporate station.
Additionally, an LLC is not barred from having other corporations as shareholders. However, an S corp is. The corporation must have only individuals or current trusts as shareholders.
If your S corp loses its status–even through no intentional fault of the company–it automatically cannot restore its state for five years. This is a true disadvantage that the LLC does not risk. Simply assign, if someone loses a section of paperwork or a shareholder crisis happens, you could be do out of business.
Finally, the dinky business may especially wish to catch an LLC structure over the S corp. It is simply more cost-effective. The initial start-up fees are usually less than $200, and often do not require the services of an attorney. On the other hand, S corp filing fees usually well exceed $200 and many people need to hire an attorney. If your business is young, it may be estimable to opt for the reduced costs–and potential headaches–and settle an LLC over an S corp.
But if you calm want to go ahead and find an S corp structure, originate distinct you know all the facts first. Read the quick-witted Hub article The Benefits of S Corporation area as an Organizational originate to learn more.