LLC vs. Corporation
When deciding to set up a small business many people hear that they should set up a S Corporation or a LLC (Limited Liability Corporation). Picking the right one for you can save you a lot of time and hassle down the road. Here are a few things to consider in making your choice.
S Corporation Considerations
- Pro: Amounts in excess of what would be considered a normal salary can be distributed as dividends (and taxed at a lower rate).
- Con: Strict filing guidelines, the need to create a board of directors and hold annual meetings with minutes and all the other administrative tie ups.
- Con: Income must be distributed based on the share % ownership, so if one partner works more and you decide they should be compensated more this can be difficult.
- Con: More costly to set-up.
- Pro: Simplified tax filings, you donâ t file for the corporation only for yourself.
- Pro: Easy to set-up and few regulatory requirements.
- Pro: Income distribution can be based on owner agreement, not share ownership.
- Con: Quarterly tax payments need to be made to the IRS based on earnings estimates.
- Con: Need to clearly keep personal expenses out of the corporation or risk seeing the LLC being not recognized by the IRS.