Starting a business in Florida can be a complex and confusing process, and choosing the right type of entity for your company is a crucial step. Two popular options for small business owners are Limited Liability Companies (LLCs) and Sub Chapter S Corporations (S Corps). Both have their own unique benefits and drawbacks, and the right choice for you will depend on your specific needs and goals.
It’s important to note that a single member LLC will not have asset protection unless there is more than one member. An LLC is a type of business structure that combines the liability protection of a corporation with the pass-through taxation of a partnership. LLCs are taxed as partnerships, meaning that the company itself does not pay taxes on its income, but instead, the profits and losses are passed through to the individual members who report the income on their personal tax returns. This provides for a simpler tax structure and can result in a lower overall tax burden compared to a traditional corporation.
An S Corporation is a type of corporation that gets its name from the section of the tax code that defines it. S Corporations are taxed like partnerships, meaning that the company itself does not pay taxes on its income, but instead, the profits and losses are passed through to the individual shareholders who report the income on their personal tax returns. This provides for a simpler tax structure and can result in a lower overall tax burden compared to a traditional corporation. However, distributions from an S corp will not be subject to self-employment taxes like an LLC. So if you are only paying wages or salaries in your LLC or S corp there will be no impact. However if a part of your income is distributions or profits then an S Corp will save you from having to pay self-employment taxes that currently run about 15%.
One key advantage of S Corporations is that they offer the liability protection of a corporation. Shareholders are not personally liable for the debts or obligations of the business, meaning that their personal assets, such as their homes, bank accounts, and personal property, are protected. This is a major benefit for small business owners who want to protect their personal assets while growing their businesses.
Another advantage of S Corporations is that they offer the ability to sell shares, raise capital, and attract investors. This makes it easier to grow and expand your business and can provide you with the resources you need to succeed. S Corporations also offer the flexibility to choose your management structure, which can help you streamline decision-making and keep your business moving forward.
However, there are some disadvantages to S Corporations, as well. For example, there are strict limitations on the number of shareholders that an S Corporation can have, and they must be U.S. citizens or permanent residents. Additionally, S Corporations cannot have more than one class of stock and cannot be owned by other corporations, partnerships, or LLCs. In addition, S coprs must file their own tax return while some LLCs do not have such an obligation.
In conclusion, both LLCs and S Corporations offer unique benefits and drawbacks, and the right choice for you will depend on your specific needs and goals. If you’re looking for a simple tax structure and liability protection, an LLC or an S Corporation may be the right choice for you. However, it’s important to consider all of your options and consult with an experienced business attorney before making a decision.
At Oppenheim Law, our experienced business attorneys are dedicated to helping small business owners succeed in Florida. We understand the complexities of LLCs and S Corporations and can help you choose the right type of entity for your business. Contact us at 954-384-6114 or visit our website for more information. We’re here to help you succeed and grow your business.