An S Corporation is one of two basic types of corporations. They’re both great options for small businesses, offering tax advantages and flexibility.
But they do differ significantly in how they operate. In short, an S Corp is a corporation whose income passes through to shareholders instead of being taxed directly.
So if you own 100% of an S Corp, then every dollar earned goes right back into your pocket. That means no corporate tax to pay! And because an S Corp doesn’t pay any federal income tax, it can offer lower rates than C Corporations.
If you want to write a startup business plan document from scratch, check out these related articles:
Advantages of Starting an LLC
Here are some reasons why you might want to create an LLC.
You don’t need to file a corporate income return for an LLC. Instead, you simply include the LLC’s profits and losses on your personal income taxes. So you avoid double taxation.
There is no residency requirement for forming an LLC. Non-U.S. citizens or nonpermanent resident owners may form an LLC without having to live in the United States.
Limited Liability Company (LLC) legal protections include protecting your personal assets from any business liabilities.
Enhance credibility. Your partners, suppliers, and banks may be more likely to lend you money if they know you’re operating under an LLC instead of a corporation.
Disadvantages of Starting an LLC
It’s an attractive option, but creating an LLC has some challenges.
- Limited growth prospects. An LLC owner cannot distribute any stocks to attract investors.
- There may be differences between state laws regarding the formation and operation of an LLC.
- Earnings from an S corporation aren’t taxed until they’re distributed to shareholders.
- If you’re converting a regular corporation into an S Corporation (an entity that pays taxes at the individual level), then you might be subject to tax on any appreciation of its assets.
Is Creating an LLC Right for Me?
It all comes down to your short- and long-term goals. You need to consider where your company is today and how you’d like it to grow before making any decisions.
How to Create an LLC (Limited Liability Company):
b) If you want to register a business under a different company than your own, choose a legal first and last name for yourself and reserve them, if the Secretary of State in your state does that kind of thing.
c) File your articles of incorporation with your secretary of state.
b) Choose which people will be responsible for running the business (the owners/manager or the employees).
e) Determine how many owners will be members of the LLC.
e) Apply for a business license and other certificates specific to your industry.
g) File Form SS-8 or apply online at the IRS website to get an EIN.
c) If you’re an LLC, C Corp, S Corp, or partnership, you may not need an EIN if you don’t plan to file federal income tax returns. However, you’ll still need to register with the IRS as a corporation or limited liability company (LLC).
You can get a corporate number from the Secretary of State’s office at http://www.sos.state.tx.us/corporations/, and an LLC number from the Texas Secretary of State’s office here: https://businessregistration.sos.state.gov/.
You may like to read: Most Profitable Amazon Business Ideas to Start
