When it comes to starting your own business, there are many tasks you need to complete that may seem daunting, such as choosing your business structure. Between LLCs and S Corporations, you may not know which is right for you and your company. Below are a few differences between these two small-business-friendly structures that will help you choose the best fit:
1. Business Formality: An S Corporation is similar to a C Corporation in that it involves compliance obligations, structure and formalities. An S Corporation would require setting up a board of directors, filing annual reports and holding shareholder’s meetings, among other duties. If you’re looking for a more informal operating agreement, an LLC is your best bet.
2. Who can be a Shareholder: An LLC has fewer restrictions in terms of shareholders. With an S Corporation, you cannot have more than 100 shareholders, and all shareholders must be either a U.S. citizen or a permanent resident.
3. Income Allocation: When it comes to income and loss, the flexibility needed will determine whether an LLC or S Corporation is right for you. An LLC will allow for flexibility when it comes to splitting profits among owners, but with an S Corporation, income and loss are based strictly on the predetermined ownership share.
4. Pass-Through Losses: Both LLCs and S Corporations allow shareholders to pass company losses to their personal income reporting. However, depending what type of loss, you may be able to write off more with an LLC, particularly with real estate investments.
Consulting with a tax advisor can help you determine which structure will be the best fit for your small business.
Additionally, Telhio Credit Union is proud to partner with the Ohio Small Business Development Center through Columbus State to provide free consulting for small businesses looking to start up and grow! Contact a Telhio business services representative at 614-221-3233, option 6.
For more information on the differences between LLCs and S Corps, check out the article LLC vs. S Corp: Which is right for your start up? by Nellie Akalp..
Telhio Credit Union is open to everyone who lives, works, worships or attends school within Franklin County and surrounding communities. Founded in 1934, originally as the credit union for the Columbus Telephone Co., Telhio is a not-for-profit financial cooperative where its members are also its owners. Driven by its philosophy that members come first, Telhio is committed to the highest standards of responsibility and conduct. Telhio offers a variety of innovative programs, services and products to support its members’ financial needs. Telhio offers six branching offices throughout central Ohio and nearly 4,000 shared branching locations nationwide. Federally insured by NCUA. Additional coverage up to $250,000 provided by Excess Share Insurance Corporation, a licensed insurance company.