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Written by : Eldon Knab
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hello and welcome to an edition of Genesis Law Firm teaches today's topic is this one LLC or corporation which is better this is a very frequently asked question should I form an LLC a limited liability company or should I form a corporation for my new business the answer is that neither is necessarily the better option it depends upon you and what you want to accomplish with your business in this video we're going to go through the high points of this discussion which is better an LLC or a corporation LLC's are the most popular and any choice available including when compared to corporations but corporations do have their advantages by the way there are many other entity types out there you could be a sole proprietor a partner you could be a limited liability partnership a limited partnership and all of these entity types have their pros and their cons by the way if you form a sole proprietorship or a partnership there are probably more cons than pros usually you won't want to choose those two options you'll want one of these other options that I mentioned a limited liability entity like a corporation or LLC in today's video we're going to focus exclusively on LLC's in corporations because they are the most popular two entity types let's first look at corporations and their advantages corporations have a very strong liability shield for their owners in fact this is the reason why there are so many corporations out there when corporations first came into existence it was the only way that you could create an entity shield of this type so if you've really wanted to protect the individuals assets and only expose whatever might have been invested in the business then you would have chosen a corporation it's also what the big boys use if you want to be like a Microsoft or a Boeing and go public then you'll want to be a corporation similarly if you want to associate with the big boys if you want people to think that you're big even though perhaps you might not be if you want that kind of prestige then maybe you would form a corporation rather than an LLC disadvantages as I mentioned there are some drawbacks here one of the biggest is that if you form a corporation the way the big boys do you subject yourself to double taxation there's taxation both at the corporate level and at the individual level so most people won't want to form a business exactly like Microsoft or Boeing instead people who form corporations will at least initially choose to be taxed under the S corporation election and that means there's only one level of Taxation but you can only do this while the corporation is closely held and there are certain other restrictions the I think biggest reason why people might choose not to form a corporation would be the inflexibility of the corporate structure you're almost always going to have I shouldn't say almost always you're always going to have a board and executives and that can be a cumbersome way to do business most people would prefer to do business either in a way that's similar to a sole proprietorship or a partnership because of the ease and how the decisions are made next let's look at LLC's limited liability companies some people say that LLC's are the best of all worlds and I can't say that that's necessarily true but there are many advantages one of the big advantages is that you get a corporation's liability shield you get the same protection for the owners that a corporation provides that's unique among all the other entities out there so these are the two best in terms of their entity shields with an LLC you get the most flexibility in terms of how you choose to be taxed even more flexibility than with a corporation so if you're trying to save money tax wise and LLC might be a good choice but ultimately most businesses end up being taxed as S corporations regardless of whether they're a corporation or an LLC because they both make the same tax election so it may not be that there's a big tax savings by choosing to form an LLC versus a corporation but you might save some money the really big reason for forming an LLC would be the flexibility of the entity structure you can choose to structure this business almost any way you want including running it as a partnership which is what most people who have multiple owners of the business really want to do the biggest disadvantage of an LLC is that it's not what the big boys use if you intend to go public or you want to associate yourself with that kind of big business then perhaps an LLC is not the best choice for you bottom line an LLC is going to be better for most people and their businesses but you might choose to form a corporation instead if you want to go public maybe you're not ready to do it now but you intend to do it in the future or if you want to associate yourself with those big dogs and I should mention that you can form an LLC and convert it to a corporation at a later date so that might be how you would truly get the best of all worlds if you would like more information on this topic or related topics you can go to our website and you might want to click on the resources tab that's where most of our videos and articles are and if you would like the address for the article associated with the same topic that we're discussing today you can find it here
Thanks for your comment Ronni Miggo, have a nice day.
- Eldon Knab, Staff Member
if you run your own business or maybe you're just starting out or confused about the distinctions between an LLC and an escort or escorts in general you're in the right place I'm Tony from the really useful information company and in this video we're gonna talk about what an S corporation or S Corp is the benefits of an S corp the complications and potential drawbacks and finally how to decide whether or not choosing an S corp is right for you the following information is for educational purposes this is not legal tax or financial advice before acting on any of this information consult with a registered accountant to begin an S corporation or S corp is not a formal business structure it's a tax classification both an LLC and a corporation can choose to be taxed as an escort for simplicity in this video we will focus solely on LLC's that choose to become S corporations there are single member LLC's and multi member LLC's and both can become escorts and LLC terms a member is an owner LLC members are not employees in fact members cannot be employees in tax terms this means members are not paid a salary they still work of course but they are paid in what are known as distributions when an LLC chooses to be taxed as an S corp it allows members to be paid a salary as well as a distribution and this is where it gets interesting because salaries and distributions in an S corp are taxed differently well look at these important differences in just a moment but before we do we should first have a look at a few restrictions as corporations F S corporations must not have more than 100 shareholders the shareholders must be US citizens or permanent legal residents the shareholders must be private individuals and may not include LLC's other corporations or certain types of trusts and finally s corpse can only issue one class of stock if these restrictions work for you keep watching to see why or why not you may want to seek S corp class vacation so we now know that an S corp allows the members of an LLC to be treated as employees and earned both a salary and distributions before we look at the details of how these are taxed differently let's be clear about something the IRS wants to collect employment taxes they want to collect employment tax and they want to collect income tax let's look at how they do that in different scenarios first if you have a single member LLC you are taxed by default as a disregarded entity money passes through the LLC to you you cannot be an employee so your income is in the form of a distribution that distribution is subject to employment tax and income tax a multi-member LLC taxed by default as a partnership works the same way the income passes through is paid as distributions and those distributions are subject to employment tax and income tax if an LLC successfully becomes an escort then the members can be employees the income generated is paid to the members both as a salary and a distribution the salary is subject to employment tax and income tax the distribution however is only subject to income tax you do not have to pay employment tax on a distribution in an S corp and this is how you can potentially save money employment tax is around 15% and as stated the IRS is going to collect it but an S corp allows you to limit that employment tax to a reasonable salary amount while the rest of your income paid in the form of a distribution is only subject to income tax thus the main benefit of an S corp is that it saves you from paying self-employment tax on distributions now let's look at the drawbacks and complications there are three complications that may be drawbacks s corpse now that we know the benefits let's consider these three reasons you might not want to form an escort the first is salary the term used by the IRS is reasonable salary and this is the amount that as a member of the LLC turned S corp you will pay yourself in addition to distributions you must choose a reasonable salary as if you are hiring another person to do your job you can research this amount on sites like last or com but ultimately you are responsible for choosing this salary amount and the IRS has increased scrutiny of escort member of salaries if you pay yourself an unreasonably low salary whether by mistake or in an effort to pay less employment tax the IRS may take notice and engage your S corp status demanding back taxes and fines so be mindful when determining your reasonable salary secondly while the potential savings of an escort basically 15% of your distribution can be significant the reality of an S corp is that it requires more work there's an expenditure of effort on your part in terms of running payroll organizing a more complicated tax withholdings and so on and this increased complexity is going to require the cost and effort of a professional accountant we estimate the approximate added cost of properly running an S corp to be between one and two thousand dollars a year if the money you are saving not paying employment tax and this distribution is less than this amount it's probably not worth it specifically if your distribution is not more than ten thousand dollars it's not really worth the cost an effort of maintaining an S corp and finally there's the consideration of reinvestment if your company is successful and you know you're going to have a surplus of revenue you can choose what to do with that money some of the choices are suited for S corp and others not so much generally speaking an S corp will serve you best if you know you're going to make a lot of money in the form of distribution and you want to take all that money out of the LLC to pay yourself if that is the case an S corp is a good choice and will allow you to save employment tax on that large district however if you make a surplus of income and when I reinvest that amount into the company in the same year you made the money you are better off staying in LLC this will avoid unnecessary income and employment taxes lastly if you have surplus revenue that you want to carry over and reinvest into the company but not immediately perhaps over several years you may be best suited by a traditional corporation which is taxed as AC Corp let's keep this simple the main factor to consider is whether or not you have sufficient profit to justify escort classification if your distribution after paying yourself a reasonable salary is greater than ten thousand dollars you have sufficient profit to justify the cost and effort of an escort if you don't know how much profit your LLC is going to make it is pointless to become an escort to start off you can always change your tax status later if you know for certain you will have sufficient profit secondly escorts are a great choice if your intent is to withdraw all the profit from the company rather than reinvesting if you have other plans to reinvest your company profit LLC default tax status or C Corp classification may be more cost effective we hope this video has provided you with useful and actionable information regarding your LLC and your understanding of the S corporation tax classification we offer this as educational
Thanks melanoforh your participation is very much appreciated
- Eldon Knab
About the author
I've studied automotive engineering at Finlandia University in Hancock and I am an expert in anatomy. I usually feel accomplished. My previous job was casino surveillance officer I held this position for 29 years, I love talking about flag football and ice fishing. Huge fan of Chris Hemsworth I practice sky surfing and collect non-sports trading cards.
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