Selecting the Right Business Entity

An S-Corp is a tax classification, while an LLC is a business structure. LLCs and corporations can both apply to be S corps if they meet the IRS’s criteria.

C corporations and S corporations are different tax designations available as business entities. Each have pros and cons, and the best choice for you will depend on the circumstances of your individual business.

What are the advantages of a C-Corp?
Even though C-Corps are subject to double taxation, they have several advantages over S-Corps:

• Fewer restrictions and more flexibility
• Can go public
• Can have more than one type of stock
• Easier to raise capital
• Fewer limits to growth
• Can have foreign shareholders

Depending on your goals as a business owner and the size of your business, you may find that these advantages outweigh the tax benefits of an S-Corp.

What are the advantages of an S-Corp?

For many businesses, S-Corps offer a number of advantages over C-Corps, including:

• Pass-through taxation
• Can pass losses to owners, who can claim them as a deduction on their taxes

Remember that an S corp is a tax election rather than a separate corporate entity. You can elect S corporation status whether you have a corporation or an LLC. However, it’s important to keep in mind that not all businesses have the option of filing as an S-Corp.

If you have additional questions about which is right for you, consider consulting a lawyer or tax professional.

Owners of an S-Corp can pay themselves a salary from the company. They’ll pay employment taxes on that salary, but they won’t have to pay self-employment taxes on the remaining profits. This could mean substantial savings and is one of the benefits of an LLC filing as an S-Corp. (Note that the LLC members will still be responsible for income and other applicable taxes on the profits.)

LLCs can be well suited for side hustles, because money and intellectual property typically flow relatively freely between the members and the LLC itself. This can happen without the tax consequences you would often see if the transactions happen in a C-Corp.

Corporations, in general, can carry on doing business free of the individuals running it. Entrepreneurs might find this business entity attractive since the potential for growth is high; it’s easier to attract investors to a corporation than an LLC.

Here are some of the benefits of a C-Corporation?

• It offers limited personal liability protection
• It continues on despite leadership changes
• It offers shares of stock
• It can operate internationally