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Depending on your unique business situation it’s a good idea to research LLC vs. Corporation. An LLC comes with more flexibility and less requirements for operation. A Corporation has a lot of requirements for operation but comes with more employment tax advantages.
Restrictions on Ownership and LLC vs corporation
An LLC has no restrictions on ownership. There are no residency requirements, shareholders can be other corporations or LLC’s. That is not the case with a Corporation. In order to be a shareholder of a corporation you cannot be a nonresident alien. If you are comparing LLC vs. Corporation for fewer restrictions on ownership, the most favorable choice would be an LLC.
Ease of Operation
A corporation has more formalities and record keeping procedures. There is a certain structure within the organization that must be followed. Profits must be distributed according to stock ownership. LLC vs. corporation, the LLC has a lot less restrictions. There are no monthly meetings to hold or minutes to meticulously keep. If the LLC is member managed it gives the members, or owners, much more flexibility in how the profits are distributed and the structure of the company. For a small company an LLC would be a much easier way to operate a business.
Tax Savings for LLC vs corporation
If you are an owner of an LLC you are considered to be self-employed. As a self-employed individual when you file taxes you pay taxes as such. Because of this all the income is subject to the self-employment tax. Comparing an LLC vs. Corporation, in an S corporation an owner receives a salary plus distribution of profits. Tax is only paid on the salary of the individual not the distribution portion. The salary must be deemed reasonable by the IRS or your distributions could be subject to taxation also.
Becoming an S corporation could save you money but there is a lot of paperwork and you could run into other problems throughout the year. Payroll tax is required and must be paid to the IRS regularly and on time. Failure to do so could result in penalties and fines. If you are not familiar with this process it could be overwhelming. If you incur a loss you still have to pay the payroll tax.
When debating LLC vs. corporation there are many benefits and disadvantages to both. After assessing your business’ needs you can make the right choice for yourself for LLC vs corporation. |
