LLC vs S Corp – Which One Is Right For Your Business?

by Durant on February 13, 2013

When setting up Florida corporations, a decision needs to be made about whether the company should be an LLC vs S Corp.  LLC’s are Limited Liability Companies.  Their profits and losses pass directly to the LLC owners, who must report this information on their personal tax returns.  In contrast, S Corporations are set up to funnel profits and losses to shareholders.

Under Florida law, LLCs are not corporations.  They are, however, relatively simple to set up.   When creating a limited liability company in Florida, you need to create Articles of Organization.  In these articles, you must include the following:

• The name of your company, which must also include the words Limited Liability Company, or LLC.
• The mailing and street address for the company.
• The registered agent for the company, who must sign the forms accepting obligation for the company.
• The manager or managers of the company.
• A specific date for the company to begin doing business.
• Filing fees must accompany the paperwork.

Remember that the initial annual report for the company will be due the first  day of January after the initial filing date.

S Corporations are more complicated under United States federal income tax laws.  When an S corporation is formed, the tax rates are assigned under Subchapter S of Chapter 1 of the Internal Revenue Code.  S Corporations basically pass along income or losses to their shareholders.  Those shareholders are then required to report the income or loss on their personal tax returns.

S Corporations have specific advantages.   Owners who work for these companies are considered employees of the company, and all their expenses are tax deductible.  The corporation, which is considered an independent entity, can continue in the event of the death of a manager, or in the event of change of ownership.

S Corporations are also audited less frequently than businesses owned by a sole proprietor.  Because profits and losses are passed along to shareholders, the owners are not typically held responsible for either. If you form a corporation in Florida, you will find one distinct advantage — Florida does not have a state income tax.  Therefore, your shareholders will not be taxed on their corporate earnings in Florida.

There are some restrictions for the creation of Florida S corporations.  The company must have 75 or fewer employees.  They must be U.S. citizens.  And a major disadvantage to the S corporation, depending on your viewpoint, is that shareholders have a stake in the decision-making process.  This means that, if they disagree with the corporation plans, they can block forward progress.

When it comes to Florida corporations, it is possible to set up either an LLC or an S Corp just by doing a little research.  But complications can arise which may delay the start of the business.  The best bet is to hire a good lawyer with solid business skills to help create the business.

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