The business industry is a complex and competition-driven world that values profit more than anything else. That is why individuals who are just beginning their businesses should make crucial decisions, and one of these is choosing what type of business they would establish.
Two of the most popular business types today are the Limited Liability Companies (LLCs) and the Subchapter S Corporations (S Corps). Many budding entrepreneurs choose between these two because of the benefit of limited liability and distribution of losses. However, there are still more to LLCs and S Corps than just these benefits. Following is a brief comparison of LLCs and S Corps based on their advantages and disadvantages:
Limited Liability Companies are businesses that are recognized as partnerships rather than corporate businesses. Because of this, no single LLC owner or shareholder would be held liable for any losses that the business would have unless they have signed a contract that appoints one individual to be responsible in such cases. LLCs are also beneficial because taxes are paid individually by shareholders based on the income and profits they receive. LLC businesses also offer a flexible way of income and profit distribution.
Similar to LLCs, a Subchapter S Corporation also avoids "double taxation". Its difference from LLCs however, is that taxes are not paid by owners individually but through the business' corporate taxes. S Corps are also recognized by the government, which means most federal laws would cover the businesses' operations.
Of course, an LLC is not a perfect type of business. Being only recognized as a partnership, LLCs often have an unstable future. This is because the fate of the company usually lies in one of its owners. If an owner dies, an LLC may cease to exist. Making the business public may also be a difficult move because an LLC is only recognized at the state level. In this situation, it would be better to establish a full-blown corporate business than a partnership type.
If LLCs have problems regarding business stability, S Corp businesses have one main problem â paperwork, and more paperwork. Because they are a federally-authorized business, they have the responsibility to submit yearly income tax returns. There are also limits when it comes to the number of shareholders and investors in an S Corp, which may discourage other investors.
While both LLCs and S Corps are ideal for starting businessmen, they also pose certain difficulties when it comes to public relations and taxation issues. If you are planning to start your own business, you have to choose which one you think suits your taste the best.