Running a business needs a lot of things to be considered as a whole. However, legal structure and tax category that a company falls under is an important part of setting up business. It’s a crucial decision which will impact your bottom line and profit-sharing method. What is right for one company may or may not be correct for the other. There are 5 basic legal structures: Sole Proprietorship, Partnership, S-Corporation (S-Corp), C-Corporation (C-Corp) and Limited Liability Company (LLC). Sole Proprietorship, Partnership and S-Corp are called pass-through entities since the taxable income of the company passes through owner’s tax return.

1. Which is Better: LLC or S-Corp?

2. Which is Better: LLC or S-Corp?
Running a business needs a lot of things to be considered as a whole. However, legal structure and
tax category that a company falls under is an important part of setting up business. It’s a crucial
decision which will impact your bottom line and profit-sharing method. What is right for one company
may or may not be correct for the other. There are 5 basic legal structures: Sole Proprietorship,
Partnership, S-Corporation (S-Corp), C-Corporation (C-Corp) and Limited Liability Company (LLC).
Sole Proprietorship, Partnership and S-Corp are called pass-through entities since the taxable income
of the company passes through owner’s tax return.

3. Which is Better: LLC or S-Corp?
An LLC (Limited Liability Company) is a legal structure of the business whereas an S-Corp is a tax
category. LLC is one of the most prominently used entity type by people all around the world. An LLC
can choose to file their taxes as an S-Corp or C-Corp, if it qualifies. The advantage of an LLC is that it
protects its members assets from company liabilities or debts. An LLC is a separate entity from its
owner. By default, LLCs are taxed as sole proprietorship or general partnership. That means when the
profit passes through the owners, it’s taxed at owner’s tax rate plus an additional Self-Employment tax
is also levied. They need to opt to file as an S-corp or C-corp. The owners

4. Which is Better: LLC or S-Corp?
An S-Corporation (S-Corp) is a US-based corporation body that holds some special facilities for tax
benefits. The total tax calculation is passed directly to the shareholders of the corporate company. The
company will file a return, but the taxable income is passed to the owners through a K1-Form.The
taxes are paid at the shareholder’s income tax rate.
S-Corp can be any individual (holding a US citizenship), certain trust or estate or certain tax-exempt
organizations. Aside from tax purpose, the other features of an S-Corp are similar to that of a C-Corp.
It offers similar liability protection, have board of directors, follow certain internal practices, conducts
shareholder meetings like a C-Corp. S-Corp is an appropriate choice for small and medium size
private companies.

5. Conclusion: -
The big question is, if an LLC can choose to file as a C-corp or an S-corp then why remain as an LLC?
LLC gives a better liability protection than a Sole Proprietorship or Partnership. And when compared to
C-corp or S-corp, the complexity of setting up the business and regulations to follow are much lesser
and not stringent. Also, it gives a flexibility of changing the tax structure at a future date. So, contact
your CPA today to decide what’s the correct legal and tax option for your company.

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