Should I Start an S Corp or LLC? An Explainer

should i start an s corp or llc

If you are thinking about starting your own business, your plate is probably pretty full. In order to launch any successful enterprise, there is a lot of hard work and preparation involved. From tailoring a comprehensive, sound business plan, to selecting the type of stationery you will use in your office, it may seem like you have a never-ending series of decisions, both big and small. One of the more important decisions you will be faced with, however, is how you ultimately decide to legally structure your business. For many new entrepreneurs, a limited liability company (LLC), due to its ease of creation and valuable incentives, is a logical choice. Other businesses may have more complex needs and goals, and forming an S-Corporation is a prudent maneuver. If you are still in the process of weighing your options, you may find yourself wondering, “Should I start an S Corp or an LLC?” Well, by understanding a bit more about these structures, you can make a more informed decision on behalf of your business.

There are a number of reasons why you would want to give your business an official, legal structure. For one, it can help you clearly lay out how your business will be managed on a day-to-day basis. For another, it can better position your organization to limit your tax liability as much as possible. There are also a wide array of options available when considering the business formation that is right for you. For some smaller business operations, a sole proprietorship or general partnership (GP) will prove sufficient. Others may find value in certain corporate or limited partnership structures. Regardless of the structure that you choose for your business, we have streamlined, easy-to-fill web forms that you can use to get up and running.

Should I Start an S Corp or LLC? Understanding Corporate Structures

When you think about corporations, you probably think of massive, multinational organizations. While it is true that larger businesses tend to favor corporate structures for a number of reasons, smaller operations also have the opportunity to incorporate them should they choose to do so. The S-Corporation, or “S Corp”, for short, is actually a structure that is designed for smaller businesses. Technically, only businesses with 100 or fewer shareholders can create an S-Corporation.

By having shareholders, an S-Corp can, as you can probably deduce, offer shares. This allows outside investors to share in the success of your business, while also giving your organization access to capital in order to facilitate growth. An S-Corp also offers a tax advantage that, conversely, a C-Corporation does not. With an S-Corp, you receive a “pass-through” designation from the Internal Revenue Service (IRS). This means that your business can pass income, deductions, losses, and credits to its shareholders before being taxed. This offers a considerable incentive that can be a major plus for your bottom line.

In order to create your S-Corp, you will need to follow a process that will be dictated by your state’s specific rules and regulations. Typically, however, you will want to start by choosing a unique name for your business that is not already registered as a corporation in your state. Next, you will need to appoint a registered agent–this person will be in charge of all legal correspondence on behalf of your business. From there, you can begin drafting your articles of incorporation–which will include some basic details about your company–by using our online forms. 

Is a Limited Liability Company Right for My Business?

Many business owners, when asking themselves, “Should I start an S Corp or LLC?” The answer tends to lean towards the LLC option. The reasons for this can vary, but many choose the LLC because it is easy to set up and maintain. LLCs also allow for less rigid management structures than corporations, and they do not typically call for much in the way of reporting. An LLC also enjoys the same “pass-through” status with the IRS that is granted to S Corps. In truth, S Corps and LLCs have a fair amount in common and they are structures that are geared toward the same types of businesses. 

To start your LLC, you will need to follow a similar process to founding an S Corp. Depending on the state in which you are starting your business, you may need a name that is unique from the other LLCs registered in your state. You will also need a registered agent, and you will need to draft what is commonly called “articles of organization” or a “certificate of formation.”

should i start an s corp or llc

Use Our Web Forms to Start Your Business

At Corporation Center, we can help you draft your certificate of formation or articles of incorporation. Simply select your state from our side navigation menu and you will be brought to a landing page containing all of our available options. To learn more, please visit our Frequently Asked Questions page, or contact us by phone or email.