Should My Business Be an LLC or an S Corporation?

With unemployment and economic woe on the rise more people are putting their own shingle out by starting their own small business in an attempt to alleviate the financial burden.  Many individuals choosing to blaze this path are confronted with some difficult decisions.  One of the first decisions involves selecting the appropriate legal structure for their new business.  Among the choices available to new business owners, the most popular legal structures include the limited liability company (or LLC), and the S corporation.
So what is an LLC and how is it different from the S corporation?  An LLC is an unincorporated association whose owners cannot be held personally liable for the debts of the company.  It operates to protect the owner’s personal assets from the LLC’s creditors.  Similarly, corporations including S corporations also endow upon its owners a “corporate veil” that acts like a shield, guarding the personal assets of its owners called shareholders from the liabilities and debts of the corporation.  In addition, the LLC and S corporations alike receive preferential tax treatment when compared to other legal structures.  The reason for this is that the two entities are both treated as “pass-through” tax entities.
The LLC is different from the S corporation in that the formalities required to create and maintain the entity are generally less cumbersome.  Flexibility is the key advantage that the LLC holds over the S corporation.  The S corporation requires a lot more oversight.  There are strict record keeping and reporting requirements, restrictions on ownership and management, and even distributions of profits are subject to limitation.  The LLC however is free from many of the limitations and restrictions that encumber the S corporation.  There are fewer record keeping and reporting requirements, operational control is flexible in that it can be member managed or manager managed.  Ownership and profit sharing is also much more flexible because unlike an LLC, S corporations like any other corporation, require that profits are distributed in proportion to stock ownership.
The bottom line is that you must be aware of the specific situation and circumstances that affect your particular business.  An LLC or S corporation may be the right choice for your company and it may not.  There is no such thing as “one size fits all” in selecting the appropriate legal structure for your company.  Either an accountant or an attorney can assist you in choosing the right structure for your business.
If you have any questions concerning the LLC or S corporation, feel free to contact us, and talk to one of our outstanding attorneys like Bettina Altizer.  The Law Firm of Altizer & Altizer is located at 324 Washington Ave., Roanoke, VA 24016. We are honest, diligent, and competent, Virginia lawyers proudly serving all of Southwest Virginia, including Roanoke, Salem, Christiansburg, Blacksburg, Martinsville, Lynchburg, Lexington, Covington, and Clifton Forge and Botetourt County, Montgomery County, Giles County, Franklin County, Pulaski County, Floyd County, Bedford County and all surrounding communities.  Our Firm handles personal injury, medical malpractice, automobile accidents, civil cases, family law, and business law.
Bettina Altizer- Attorney at Law
540-345-2000