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How LLCs and S corporations differ

On Behalf of | Aug 4, 2022 | Business Law |

When you establish a Florida business, how you decide to structure that business impacts everything from your tax obligations to your degree of personal liability. Many Florida business owners decide to create limited liability companies, while others often structure their businesses as S-corporations.

Per Business News Daily, entrepreneurs trying to decide between the two options may have an easier time doing so once they understand how they differ.

Understanding LLCs

An LLC is a business formation type that limits your personal liability should someone file a lawsuit or score a judgment against your company. Taxed in the same manner as sole proprietorships, LLC members may report profits made on their personal, rather than corporate, tax returns.

Understanding S-corps

An S-corp is a tax election status dictating that your business undergoes taxation in the same manner as a partnership. Known as shareholders, S-corp business owners collect reasonable salaries, and the business’s profits, losses, deductions and credits undergo taxation at the shareholder level. You must register your business as an LLC or C Corporation before becoming an S-corp.

Understanding how they differ

There are important differences between LLCs and S-corps, including key tax implications. When it achieves S-corp tax status a business avoids double taxation. LLC members, meanwhile, have to pay self-employment taxes, among other key tax differences.

LLCs and S-corps also differ when it comes to their management structures. Managing an LLC is not unlike managing a partnership or sole proprietorship, and LLCs may have any number of members. An S-corp has to have less than 100 shareholders, and they also typically maintain boards of directors.

While these are some of the key differences that exist between LLCs and S-corps, there are other important distinctions, too, that might help you determine whether an LLC or an S-corp might better suit your needs.

Founding Partners Damaso W. Saavedra and Allyson D. Goodwin