C, S or LLC?

[M.D. Holloway]

It seems like S is best for less taxation and greater ability for outside investment...Ideas?

[RANDY P]

depends on the size of the company. S corp is for smaller businesses- taxes are passed though so there's an advantage. C corp is for larger entities- taxed at each stage . LLC is good for partnerships but not much in terms of actual protection...

rjp

(owned an S corp for years...)

[jwasbury]

LLC should have similar or same limited liability protection as a corp, but can be taxed like a partnership.

Pros of S Corp - simple. Easy to set up. Limited liability protection. Passthrough taxation.
Cons of S corp - limitation on shareholders. No non US shareholders allowed, another corporation cannot own shares in an S Corp

Pros of LLC - limited liability protection. Non US Investors permitted, corporate investors permitted. Passthrough taxation.

Cons of LLC - more costly to set up. An LLC is a very flexible legal entity, but it's only as "good" as the operating agreement. It can be costly in terms of legal advice to have a "good" operating agreement drafted.

[Rusty914s]

Asking this type of a question is tough because there are so many variables. However, what randy says isnt true in regards to LLC and protection.

The gentleman that answered second knows much more about structuring a business.

The way that I generally do it, is one llc on top/master, 3 under..one that has all liabilities and 1% ownership, then 1 llc that takes in investment capital, ownership at 30-50 and another one that does management. Risks are separated and absolutely minimized. My agreement is about 47 pages long. All legal jargon that I had to pay for.

[cashflyer]

Originally Posted by Rusty914s

The way that I generally do it, is one llc on top/master, 3 under..one that has all liabilities and 1% ownership, then 1 llc that takes in investment capital, ownership at 30-50 and another one that does management. Risks are separated and absolutely minimized.

Cashflyer likes this. +1

I have my business interests spread between two C corps and one LLC.

[DanielDudley]

Look into becoming a sole proprietor, and set up a DBA. Lots of tax benefits if you stay small.

[Nickshu]

I'm an LLC then elected S-corp status within the LLC. Laws vary state to state.

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[cashflyer]

Originally Posted by DanielDudley

Look into becoming a sole proprietor, and set up a DBA. Lots of tax benefits if you stay small.

Lots of risk exposure that way. I guess it depends on what you are doing and what personal risk you are willing to take.

[id10t]

Originally Posted by cashflyer

Lots of risk exposure that way. I guess it depends on what you are doing and what personal risk you are willing to take.

And, very hard to grow further should you become really successful

[Rusty914s]

Originally Posted by DanielDudley

Look into becoming a sole proprietor, and set up a DBA. Lots of tax benefits if you stay small.

DBA just means DBA. I don't know of any advantages outside of a name change.

I'd love to hear a better explanation, I'm always open to less liability.

[Vipergrün]

With an S Corp you can pay yourself a "reasonable" salary, then take draws above and beyond at potentially much less tax rate. I was told an S Corp adds additional levels of liability protection compared to an LLC

[HHI944]

Given the regularity with which courts have become fond of piercing the corporate veil, none of them afford true liability protection. C, S, LLC, doesn't matter, if it's just you or just you and a family member, they will take your stuff if you get sued...

[jwasbury]

Assuming a S corp with you as the sole owner, the only tax advantage of salary vs. draw is FICA and Medicare. Once the salary goes above FICA limit (~100k), then it's only Medicare. Marginal income tax rate will be the same if its salary or S corp distribution.

Now if you're comparing to a c corp, then s corp has the very real advantage of avoiding double taxation.

With an S Corp you can pay yourself a "reasonable" salary, then take draws above and beyond at potentially much less tax rate. I was told an S Corp adds additional levels of liability protection compared to an LLC

[wdfifteen]

I can't think of why a C corp would be an advantage to most small businesses. My atty and accountant set my company up as a C corp 28 years ago and it works for my unique situation, though I had to do a lot of creative restructuring to avoid double taxation once the company grew and its properties were worth something.

[jwasbury]

Today if your atty or accountant sets up a C corp to hold appreciating property, that would be grounds for a malpractice case. There are instances where a C corp is necessary, of course.