LLC trending toward S-Corp

Has anyone else heard that LLC formations are trending toward S-Corp filings?

 

Wouldn't know, I've never bothered with LLC.

 

Don't concern yourself with what is trendy. Get an accountant and see what structure would be best for your personal situation.

 

Of course, each situation requires its own solution but I actually heard this news from my accountant and they were mentioning the trend (of successful businesses switching) was due to an s-corp providing more protection over an llc.

 

I've never heard of that. What more protection could an S-corp offer?

 

Liability protection is going to be iffy with either structure. Maybe there is new precedent coming from legal cases or something where, in practice, S-corps are looking better these days?

 

Yeah legal precedence plus other specific tax liabilities ... lots of big corps even redefining their existing llc's into s-corps

Anyway, as always something to ask your accountant about

 

Very interesting, thanks.

 

I ran a sole-proprietorship for about a year, followed by an s-corp, and it's my general understanding that the reasoning to incorporate is to make it easier to divide up ownership of the company and facilitate an eventual sale of the company. LLC's are quick and easy to set up though, without all the hassle of corporate quarterly filings.

LLC should protect business to a pretty good extent.. i mean they are Limited Liability..

 

Here's an article on the advantages of an S corporation versus an LLC. There are some tax advantages to an S corporation under certain circumstances, mostly due to savings in payroll taxes by treating income as dividends rather than wages. However, you have to make a fair amount of money before you can really justify characterizing any portion of the earnings as dividends. In addition, the cost of preparing and filing payroll tax returns, along with the sizable penalties if you make a mistake, often offset the savings.

There are some subtle differences in liabilities of owners of LLCs versus S corporations but basically the liability protection should be the same.

This can't be true. If you are talking about big corps owning interests in S corporations, that violates the ownership rules for S corporations under the Internal Revenue Code, because S corps cannot have corporations as shareholders. If you are talking big LLCs becoming S corps, that also cannot be true because S corporations can have no more than 100 shareholders.

 

There is no reason that the ownership of an S corporation should be easier to divide than the ownership of an LLC. In fact, since an S corporation must have a single class of stock, it may be easier in many cases to allocate appropriate economic interests in a business that is organized as an LLC.

 

Get an accountant and see what structure would be best for your personal situation.

 

LLC offer the best asset protection, but from a tax perspective, s-corp could help you save on self employment taxes. Rather than switch to an S-corp and do all that paper work, its best to remain an LLC and elect to be taxed as an S-corp by filling out form 2553.

 

Get with your accountant to decide what is best for your business. You ussually need a corporation if you plan on selling shares of the company though.

Most startup / small design companies go at it from a Sole Proprietorship. Big ones are usually LLC based.