For Entrepreneurs Starting a New Business, Should You Use a Limited Liability Corporation (LLC) or S Corporation to Start Your Business?

Starting your own business and being your own boss has become very important to many Americans. To come up with an original idea or invention and be able to market it to make a living is becoming the new American Dream.

Before you start your business however, ask yourself: What type of business should I start? That is to say, should my business be a Limited Liability Company (LLC) or a S Corporation for example.

Before you decide though, know that both of these examples have similarities and differences.

For example, neither an LLC nor a S Corporation will be recognized in the state of California until the appropriate paperwork is filed.

Secondly, both the LLC and S Corp. grant the business owners protection against business creditors. This means that the liability that a business owner is on the hook for will not extend to the owner's personal assets.

Finally, when it comes to taxes, it is possible for both LLCs and S Corporations to have the business profits and losses be reported on the tax return of the owner.

The main differences between an LLC and S Corporation is how many owners they can have and what kind of owners. That is to say, anyone can be an owner in an LLC, however for an S Corporation there can be no more than 100 owners who must all be U.S. Citizens.

Another important difference between the two is how profits are shared. Under a S Corporation formation, all profits must be shared equally between the owners and what percentage of the business he or she owns. LLC's have more leeway in how profits are distributed.

Finally, when compared to an S Corporation, and LLC is cheaper to form initially.

Whatever option you feel is best for your business, you do not need to go at it alone. This is a simple breakdown of the differences between an LLC and a S Corporation. Seeking the guidance of an experienced Business Attorney can help you decide how to set up your business.

This is a California Business Law blog. It is not intended to be used as legal advice. For further information please contact the law offices of attorney Ramona Kennedy.

Ramona Kennedy (Attorney) received her Jurisprudence Doctorate in America and is a licensed attorney in California (USA).

It is advisable to seek legal guidance from our office today as we strive to help guide you with your specific case. 

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