The S Corp and the LLC

For some new small business owners, personal liability and complex taxation issues may appear to be barriers to a dream.  However, with proper legal guidance and planning, you may find that the law has created safe havens for would-be entrepreneurs in the forms of Limited Liability Companies (LLC’s) and Subchapter S Corporations.

The Limited Liability Company is a relatively new form of business that may provide the limited liability benefits of a corporation, as well as the beneficial taxation and flexibility of a partnership.  An LLC is established at the state level, and with proper planning, tax foresight and legal counseling, it may be the best option for your small business.

An S Corporation is a specific tax election by a corporation subject to certain requirements.  An S Corp may not have to pay the taxes on the corporation’s gains or losses, and the income may pass through to the shareholders, who are then taxed on their personal returns. Consult an accountant to see if your corporation is eligible for an S Corp designation, potentially saving you from double taxation, while still protecting your personal assets.  There is typically a limit in the number of shareholders in order to obtain an S Corp designation and the corporation still has responsibility for Franchise Tax obligations.

As always, check with an attorney before entering this complex, yet manageable arena, and be sure to consider all possibilities before deciding on a business structure so that your first steps will lead you in the most rewarding direction.

Blog Post written by Matthew Wheeler

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