S Corporation or LLC?



Author: Attorney Wes Weigel

Whether you’re starting a new business or have just decided to seek added protection for your personal assets, determining which entity type best suits your situation can be a difficult proposition. While there is no golden rule, examining each businesses individual characteristics will help determine the best direction.

Tax implications are usually a driving factor in deciding between S Corporations and Limited Liability Companies. Limited Liability Companies are for the most part “pass through” entities in regards to taxation. Both the profits and salaries are subject to self-employment taxes. However, Limited Liability Companies can elect to be treated as S Corporations for taxation purposes.

S Corporations can take advantage of income shifting, avoiding added taxation in regards to retained profits and thereby avoiding added taxation on retained corporate profits.

Both S Corporations and Limited Liability Companies offer protection to the personal assets of the shareholders or members, respectfully. However, this protection is not absolute and there must be strict adherence to the requirements for each to maintain the protection of personal assets.

S Corporations have more formalities, such as the requirement for an annual board and shareholders meetings where minutes must be kept, as well as filing an annual report with the Secretary of State. Limited Liability Companies are not required to hold meetings and for the most part are not burdened with as much required paper work.

Deciding which route best suits your business and personal needs depends on several considerations such as:

  • The type of business you have.
  • The risks involved with your business. 
  • The number of individuals involved in ownership.
  • The complexity of your business operations.
  • Long and short term business objectives.

Every business is unique. Choosing the correct entity type for your specific circumstances is a decision that should be made with great care. Your ultimate goal is to establish protection for your personal assets through the least restrictive means possible, enabling you to focus primarily on growing your business.

It is always advisable to consult an experienced business attorney to help guide you through this process. We have been assisting business owners in Williamson County, Franklin, Nashville and Middle Tennessee for 40 years and would gladly guide you in making the right choice for your situation.

22,818 Responses to “S Corporation or LLC?”

  1. Christena Stawell
    22. Apr, 2017 at 6:45 am #