When entrepreneurs choose a legal entity and tax classification for their business, it’s best to familiarize themselves with all the available options to find the one that is best for the business in the long run. Read on to discover the difference between an S corp and an LLC, and how to determine which option may be best for your business. Show What is an S corp?An S corp (also known as an S corporation) describes a tax classification that “passes corporate income, losses, deductions, and credits through to shareholders for federal tax purposes.” To become an S corp, businesses must meet certain criteria, including being a domestic corporation; having no partnerships, corporations, or nonresident alien shareholders; having no more than 100 shareholders; and having only one class of stock — among other requirements. To become an S corp, businesses must submit Form 2553 Election by a Small Business Corporation signed by all the shareholders. The advantages of becoming an S corp include:
S corps also have disadvantages for business owners, including:
[Read more: 5 Types of Organizational Structures for Small Businesses] What is an LLC?A limited liability company or LLC is a business structure that offers the protection of a corporation, as well as the efficiency and cost of a sole proprietorship or partnership. LLCs are often easier to operate than traditional corporations because they don’t require a full board of directors, numerous shareholders, or strict guidelines to keep LLC status. According to the IRS, LLC regulations differ by state. Your specific business, financial, and lifestyle goals can help determine whether an S corp or an LLC is the right choice for you. The advantages of becoming an LLC include:
The disadvantages of becoming an LLC include:
[Read more: Tax Impact on LLCs, Partnerships and S Corporations] S corp vs. LLC: Which is right for you?Your specific business, financial, and lifestyle goals can help determine whether an S corp or an LLC is the right choice for you. Here are some key factors to consider.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation. Follow us on Instagram for more expert tips & business owners’ stories. To stay on top of all the news impacting your small business, go here for all of our latest small business news and updates. CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here. Find out how the U.S. Chamber of Commerce can help your company grow and thrive in today's rapidly-evolving business environment. Connect with our team to learn how a small business membership can benefit your bottom line and help you achieve your goals. Is an S Corp a private corporation?Private companies are sometimes referred to as privately held companies. There are four main types of private companies: sole proprietorships, limited liability corporations (LLCs), S corporations (S-corps) and C corporations (C-corps)—all of which have different rules for shareholders, members, and taxation.
What is the difference between a corporation and an S corporation?The C corporation is the standard (or default) corporation under IRS rules. The S corporation is a corporation that has elected a special tax status with the IRS and therefore has some tax advantages. Both business structures get their names from the parts of the Internal Revenue Code that they are taxed under.
What qualifies as an S corporation?S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.
Why is it called an S corporation?“S corporation” stands for “Subchapter S corporation”, or sometimes “Small Business Corporation." It's a special tax status granted by the IRS (Internal Revenue Service) that lets corporations pass their corporate income, credits and deductions through to their shareholders.
|