| Advantages: |
 |
LLCs
are not bound to the maximum of 75 shareholders
limitation of S-corporations. |
|
LLCs
have less restrictions on various aspects of their
operation, i.e.: LLCs can be more appealing for US
companies whose owners are from various countries since
LLCs are not required to have an annual meeting of
shareholders. |
|
Compared
to C-corporations, LLCs provide the tax benefits of a
partnership. Tax advantages include flexibility on
deducting operating losses from the shareholder’s
other income. |
|
Compared
to S-corporations, LLCs are more flexible to place
shares in a living trust. |
| Disadvantages: |
|
Fringe
benefit plans (i.e. stock option plans) are better
structured for corporations than for LLCs. |
|
Salaries
and profits of an LLC can be subject to self-employment
taxes (i.e. 15%) while for corporations only salaries
are subject to self-employment taxes. For smaller
operations, an S-corporation gives the advantage that
the employee-owner is taxed a relatively (to LLC) lower
tax by having an untaxed (for the self-employment tax)
profit distribution. Still, the employee-owner of the
S-corporation might have to go through cumbersome
procedures with the IRS to convince the tax officials on
the sincerity of this distribution. It is possible that
the IRS will recalculate the tax assuming as salary part
or all of the distributed profits. |
|
Especially
when compared to C-corporations, the avoidance of
double-taxation could have a negative effect:
A C-corporation is not obliged to dividend out
its profits immediately. As such, retained earnings or
other investments could prevent portion of the profits
to be taxed. In contrast, the LLC profits are directly
passed to the owners’ taxable income. |
|
If
you are a US citizen or resident you may find it more
tax wise to have an S-corporation since you may pay less
tax as an employee-owner. |
|
Many
states require a minimum of two members for an LLC while
they require one shareholder for corporations. |
|
Unlike
corporations, LLCs can have a limited lifetime; i.e.
following a death or bankruptcy of a majority owner. |
|
Transfer
of ownership can be more complicated since most LLCs
limit such transfer to a prior approval of members
holding a majority ownership. |
| Back
to LLC Information |
