5 Major LLC VS S Corp Differences That Impact Organizational Structure

LLCs are the types of business organizations that many are familiar with. In fact, sometimes entrepreneurs do not even recognize that there are other options available to them. Forming an LLC is not the only way to go when you are an entrepreneur looking to start your own business. S corporations provide another option to consider. Find out all about the LLC vs S corp differences that will have an impact on your future business below.

Co-Owners

There are considerable differences between LLC vs S Corp businesses when it comes to the amount of owners a company is allowed to have. S corporations are limited to no more than 100 shareholders, or owners of the business. Limited Liability Corporations, on the other hand, can have an unlimited number of shareholders, which may be great for online business models. This may not seem to affect your future business just yet. However, it could it the future should your business grow and decide to go public. Consider your company’s future goals to determine whether an LLC vs S Corp would better enable you to reach those goals with or without shareholders.

Taxes

LLCs are different from S corps in that they usually have lower taxes. This is due to a number of reasons. Some of these lower tax costs are caused by variances in payroll taxes and state corporate taxes. Regardless, having lower taxes to worry about is surely a welcome breath of fresh air for many new entrepreneurs. But, an S corporation can provide tax benefits in regards to your take-home income in the future. You need to keep this in mind when deciding whether to form an LLC or an S corp if you want to set your future business up for success.

Boards of Directors

There are different requirements regarding boards of directors when it comes to deciding between an S corp and LLC. Mainly, S corporations require a board of directions in order to run business operations in a compliant manner. LLC businesses, on the other hand, require no board of directors. In fact, they require no directors or managers at all. LLC owners can choose to manage the business themselves or hire someone else to do it. If you plan on taking your business public in the future, that is, if you manage to make it past the first year of business successfully, or you are already looking for investors to fund your business idea, forming an S corp now could streamline the process.

Bylaws vs Operating Agreement

One of the biggest S corp vs LLC differences is in regards to the business’s bylaws and operating agreements. S corporation business owners will be responsible for having bylaws created for their corporation. LLCs do not require an owner to write business bylaws. However, these types of organizational business structures do require operating agreements to be created. This is unlike S corporation structures, which do not require operating agreements. These are the different, yet similar tasks that all types of business owners will be required to manage, regardless of whether you form an LLC or an S corporation.

Complicated

Many business experts say that when it comes to simplicity and ease-of-use, LLCs advantages are numerous. S corps are more complicated to structure. LLCs are very user-friendly and easy to set up without much prior knowledge. This is of course a considerable advantage for new entrepreneurs like yourself. You just want to be sure to consider all factors in your decision to choose one business structure type over another. That includes considering the simplicity of incorporating a business.

If you are an entrepreneur looking to incorporate a business for the first time, you want to be sure you know all your options. LLCs vs S corps advantages are frequently pitted against each other in many entrepreneurs’ minds. But, both of these types of business organizational structures can provide numerous advantages and opportunities to entrepreneurs at different points in their tenure as a business person. Consider the LLC vs S corp differences detailed above. They will help you make the best business decisions possible for your future company’s success and longevity.

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