Given that LLCs come in many forms, it is easy to mistake one for an incorporated business such as an S corp. However, these are two different business structures. If you want to start your own enterprise, you should know which of these structures may be of greater benefit.
LLCs and S corps differ in a variety of ways, including how the law treats them. Here is a look at common factors that distinguish these companies.
Taxation
Owning an LLC means paying federal taxes yourself, including your Social Security, Medicare and self-employment taxes. However, an S corp pays you a salary. Therefore, the S corp will withhold taxes from your paycheck.
Management of the business
An LLC can vary in the complexity of its management structure. One or two persons may run the business, or perhaps many more. Some LLC have members that elect managers to actually run the business on their behalf.
An S corp almost always has a board of directors in place to select officers. The officers carry out the daily management of the company while the directors are in charge of more important decisions.
Owning a subsidiary
If you want to buy another business to own as a subsidiary, it is important to select the right business type. An LLC can create subsidiaries without the burden of restrictions. By contrast, an S corp is not eligible to own any subsidiary companies.
Generally, corporations involve create complexity and paperwork, so many entrepreneurs prefer to set up LLC. However, some business owners find S corps useful for raising capital. Your choice of business should depend on your priorities.
