S Corp

WEEK 4: List the differences between the S-corporation and the limited liability company.

Advantages of LLC formation include:

Limited Liability - LLCs provide limited liability protection to its owners.

Typically, the owners are not personally responsible for the debts and liabilities of the business; thus, creditors cannot pursue owners’ personal assets (such as a house or car) to pay business debts. Conversely, in a sole proprietorship or general partnership, owners and the business are legally considered the same and personal assets can be used to pay business debts.

Pass-through Taxation - LLCs typically do not pay taxes at the business level. Any business income or loss is "passed-through" to the owners and reported on the owners’ personal income tax returns. Any tax due is then paid at the individual level.

Establishing Credibility - Forming an LLC may help a new business establish credibility with potential customers, employees, vendors, and partners.

Fewer Ongoing Requirements - LLCs face fewer state-imposed annual requirements and ongoing formalities than do corporations.

Organizational Structure - LLCs are free to establish any organizational structure agreed upon by the owners.

Few Ownership Restrictions - There are few restrictions on who can be an owner of an LLC or how many owners a LLC may have, unlike S corporations.

S corporation advantages:

The S corporation structure can be especially beneficial when it comes time to transfer ownership or discontinue the business. These advantages are typically unavailable to sole proprietorships and general partnerships. S corporation advantages include:

Protected assets - An S Corporation protects the personal assets of its shareholders.

Pass-through taxation - An S Corporation does not pay federal taxes at the corporate level

Tax-favorable characterization of income - S corporation shareholders can be employees of the business and draw salaries as employees.

Straightforward...