LLC Versus S Corporation

[User562215]

My question involves business law in the state of: Pennsylvania

I would very much like to know the main differences between Limited Liability Corporation (LLC) and S Corporation.

I would also like to know what the usual fee is to get it done online.

You help is very much appreciated.

Thank You in advance.

[Conrad Hunter]

There is certainly plenty of info on the internet to answer your question.

However, in a nutshell, an LLC is a partnership with third party liability protection. It has an operating agreement and the partners are members. Not all members are necessarily managing members. There is no stock, no board of directors, no stockholders. When an LLC goes bad, it usually goes very very bad.

There really is no such thing as an "S" corporation. There are corporations. A corporation can take an election with the IRS by filling out a form, so it is taxed like an LLC, thus it is called an "S" corporation. There are disadvantages to "S" corporation election including being able to issue only one class of stock and limitations as to certain stockholders.

Personally I would never ever be involved with an LLC. I am sure there are people here who like LLC's but I have seen far too many of them crash and burn.

You can do either type of entity online right at the website of the Secretary of State in whatever state you want to incorporate in. You don't need any incorporation company, they just charge you to do what you can do online in 10 minutes or less.

[User562215]

Well for me I have no choice but to get either one as I want to protecting my personal assets by separating them from my business assets in case of a lawsuit.

I don't want to argue but according to this http://www.legalzoom.com/legal-incor...-overview.html there is a S Corporation.

Would you happen to know which of the two offer Tax Benefits?

[aaron]

That will depend on the facts, and is something you would discuss with your accountant.

[flyingron]

In most cases an S corp or a LLC with one shareholder/member are going to be the same income tax wise. You may find smaller filing fees in most states for LLCs vs corporations.
Understand that except for debts incurred solely by the LLC/corporation, you don't get any protection. Most people won't loan a startup LLC / Corporation money without a personal guarantee.
As stated, you are always responsible for your personal actions. If you are the sole shareholder and employee of the LLC/Corporation, you are at risk anyhow.

[SChinFChin]

Well for me I have no choice but to get either one as I want to protecting my personal assets by separating them from my business assets in case of a lawsuit.

I don't want to argue but according to this http://www.legalzoom.com/legal-incor...-overview.html there is a S Corporation.

Would you happen to know which of the two offer Tax Benefits?

If you are engaged in complex business transactions, your questions here suggests that you should have an attorney or CPA to review your situation.

I bought a business from a couple who had their business in an "S Corp". In the year prior to selling me the business, they sold and installed tires on a customer's car, and because it was allegedly done incorrectly, the tires fell off the car while they were crossing the Verrazano Bridge here in NY, a high velocity accident, almost resulting in the car flying into NY harbor. The customer's lawyer sued the "S Corp." as well as the couple personally. They sued the couple personally for gross negligience for the failure to properly hire, train and supervise the technicians.

Fortunately for the couple, after they sold the business, they took the proceeds and bought a home in FL, and at the time, has a robust homestead law where the entire home is protected form creditor seizures. After the attorney heard during taking a deposition from the technician, and speaking with my manager later, confirmed the owners bought the house in FL, moved there, that did they decide to settle the case, under the S Corp's liability policy only. The conclusion here is it's NOT the S Corp. that gave the owners the protection, but it is the insurance policy and the homestead laws that did it.

And if you organized a business under an LLC, it's far easier for creditors to come after you if you play an active role in managing the business.

I do real estate investments and rentals, and in this business, for tax reasons, properties are not placed into S Corps. due to unfavorable corporate depreciation and capital gains reasons. This is why most such investments are done through partnerships with limited partners, where the limited partner status would shield your liability, and the general partner managing the syndicate organized as a corp, assuming the risks. Small property owners hold their properties via LLC's for this very reason.

Some time back, I follow a real estate investing site where the moderator is a serious commercial property investor. And as your post alludes to, creditors would find ways to go after his personal assets, and for most people, it would be his home. I don't have the time to look it up now, he had his own home placed in some type of trust. I recall it was a "family trust". My wife was a commercial loan officer at one time, and another favorable tactic of business owners is to have the business, business assets, all under the husband's name, and the home entirely under the wife's name. Creditors can sue the husband personally all they want, but the home is under the name of the wife.

Finally, had a relative engaged in the sale of insurance products, annuities, 401K's etc., and you can invest in some of these products, creditors cannot come after you and seize them. Bottomline is, asset protection is a strategy, and it's a lot more than just placing a business in an S Corp.