Differences Between Corporations, Llcs And S-Corporations
When forming your own business, you will have several options about how you want to incorporate the business and have it run. Of the many options that will be laid out before you, three of the most common are LLCs, corporations, and S-corporations. You might be confused about the differences and similarities between these three. This brief guide will serve to clarify those matters for you. If you have any further questions about incorporating a business, you should seek the advice of a local and trusted business attorney. Read on.
Corporations
A corporation usually works best when you have numerous investors interested in funding your venture, as the tenets of a corporation can more easily manage multiple investors, especially if said investors are interested in being active in the daily goings on of your business. By forming a corporation, you can offer these investors corporate stock certificates as evidence of partial ownership of the business. A corporation can also offer fringe benefits to partial owners. As the founder of the business, you will likely be elected chief executive officer; you can then use the funds of the business to fund health insurance benefits, paid time off, and medical expenses.
LLCs
LLCs are quite simple in the way they are founded and run. Most of the time, founding an LLC simply requires that you fill out a form listing those involved in the LLC partnership and to what extent they will be involved in running a business. If you own a small business and are involved with running its daily activities, an LLC is most likely for you, especially if you own the real estate in which the LLC operates from. This is due to the fact that regular corporations are personally taxed, as well as having the corporation taxed whenever property is sold. Members of an LLC do not have their corporation taxed. Rather, this is passed onto their personal taxation.
S-Corporations
If you are a self-employed individual – either running your own business on your own or doing freelance work – you may want to consider founding an S-Corporation. If you are self-employed, the IRS will demand the same amount from your funds that you receive as if you were employed by an outside source. However, when you are employed by a third party, this third party will withhold the funds required by the IRS. An S-Corporation will tax you on the relative amount of work you did but not the total amount of profit you have accrued. In addition, you can write off numerous work-related expenses that you otherwise would not be able to do if you simply filed your taxes as if you were self-employed.
For more information, contact Strauss Troy or a similar legal professional.
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