S Corp vs LLC? What is the right structure for you?

Posted by Natalie Sulimani

October 23, 2009

[Please Note This Applies to NY, As Always,

Please Consult Your Local Legal or Accounting

Professional.]

On October 22nd, I hosted an event with my colleague Pamela Walker in discussing the differences between a S Corp and LLC. Contrary to what you may have been told, one structure isn’t better than the other. Each business owner has to look at their individual circumstances in order to decide which structure would work best for them. Read on and make your decision, but know this, incorporating is always better than not incorporating. Don’t play the odds with your personal assets. Protect yourself.

S Corporations vs. C Corporations vs. LLCs

by John Morales

The first step in incorporation is to decide what type of corporation you want to be. The chart below is intended to be a quick overall guide to help you make an informed decision by comparing S Corporations, C Corporations, and Limited Liability Companies (LLCs). The chart allows you to compare and weigh the different aspects of each, such as what are the costs associated with incorporation, which types of corporations have pass through taxation, what are the administration requirements of each type of corporation, who are eligible to be owners, shareholders and members, what are the rules for transferring interests in the company, and how are profits and losses shared among interest holders.

The advantage of all of these types of corporation is that liability cannot, without legal cause, reach beyond the corporation to the personal assets of the owners, members or shareholders. The different types of corporations respond to the different needs and intentions of the company. It is important to assess for yourself the purposes and goals of incorporating your company in order to make the best choice. To aid in your consideration, the following chart is designed to guide you through this process by presenting the important differences and simi

larities of these three options side by side. For example, S corps. benefit from a special tax s

atus that eliminates the double taxation on dividends that one finds in a C corp. but have more re

strictions that make it less flexible than an LLC or C corp. However, LLCs, unlike both S and C corps., are unable to sell public shares of its company, although it may sell ownership interests. The exception is that an LLC may decide to be taxed as a C Corp. and can then issue stocks but at th

e cost of no longer having pass through taxation. Whereas both S and C corps. must abide by formal requirements of structure and organization, an LLC is a much less formal entity offeri

ng more possibilities in who the owners are and how the business is run. Where New York or N

ew York City laws are different than generally followed rules, it is noted. Further information on all aspects of filing for incorporation in New York can also be obtained from the NY Division of

Corporation website, http://www.dos.state.ny.us/corp/corpwww.html.

Given the complexity of choosing how to incorporate, this chart is meant to be the beginning of your decision-making process, and it is not intended to be the end of it. Further research and self-evaluation are necessary to make an informed decision, and interes

ted individuals are strongly encouraged to seek professional advice to help them make the choice that is best for their business and circumstances.