Mansfield Business Development Attorneys
Let Us Help You Choose the Right Formation Strategy
At Crain & Wooley, our team of reliable and efficient attorneys understands that tax rates and asset protection are two major concerns for business owners. That is why our legal team is committed to helping clients in the greater Mansfield area determine the best structure for their business operations.
Is There a Difference Between an L.L.C. and S Corp?
A Limited Liability Corporation (L.L.C.) is a formal business structure that separates the owner’s personal and business activities. An S Corporation( S Corp) is a type of tax classification that corporations and LLCs use to save money and position the business for growth.
Why Do Business Owners Use L.L.C.s?
L.L.C.s benefit business owners because they protect assets and have a less complicated tax structure compared to a corporation. L.L.C.s are suitable for small business owners because they prevent personal assets from being seized to pay off debts accrued by the business. So if the L.L.C ends up filing for bankruptcy or defaults on loans, the creditors would not be able to garnish personal accounts or seize property to pay back debts.
L.L.C.s are considered a pass-through entity, which means the L.L.C. does not pay taxes itself and instead, passes the profits and losses of the corporation through to the owners, who are then taxed at their personal rate.
Why Do Business Owners Use S Corps?
S Corps aren’t taxed at the corporate entity level, which means corporate income, losses, deductions, and credits can pass through to shareholders for federal tax purposes. Since all financial considerations are assessed at the individual income tax rates of shareholders, S Corporations don’t have to worry about double taxation on corporate income.
A company must meet the following conditions to qualify as an S Corporation:
- No more than 100 shareholders
- Must be a U.S. company
- Must meet certain shareholder qualifications
- Cannot be considered an ‘ineligible corporation’ under the law
If the company meets all the requirements listed above, then the corporation has to file Form 2553 no more than two months and 15 days after the beginning of the tax year the S Corp election is going to take effect (IRC 1362(b)).
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