S corp or LLC

I'm an LLC type of guy myself.

LINK

quote:

---

What are the pros and cons of each? And which one is better?

---

I'm not saying there is absolutely zero justification for ever doing an S-corporation, but for 90% of small business owners (perhaps more than 90%) - LLC should be the way to go as the organizational structure.

An S-corp would only be superior, in my mind, if you wanted to open it up to investment to corporate entities and/or issues more than 1 class of stock. In virtually all other situations, the LLC would cover you up until the point you needed to reorganize as a full corporation.

Poodle - Which is better for buying rental property with a partner?

I'm purchasing more rental houses with a partner and his income is substantially higher than mine. Is this going to be a mess during tax season?

A lot of real estate investment projects form LP's.

An LLC is almost always the better choice for owning real property. S-corps are not really good entities for owning real property. The issues are too many to go into on a message board.

The one big benefit of an S Corp is the fact that the net income allocable to the shareholder is not subject to the self-employment tax. You do have to pay yourself a salary, which eats away at some of the benefits of an S Corp, but the savings can still be sizeable.

In exchange for the tax savings, you give up a lot of flexibility and non-tax benefits that are inherent in an LLC taxed as a partnership.

So, to answer your question, one would need to know more about the business you are in.

quote:

---

VC funds are concerned with the exit strategy for the investments they make. The goal for VC funds is for the companies it invests in to go public. This is the easiest, and generally most profitable, way for the VC fund to cash out of an investment. If the VC fund owns membership interests in LLCs, those interests often have to be sold at significant discounts due to lack of marketability and lack of control.

---

I'm guessing you must work with a lot of late-stage investors? The clients I've had in this area tend to be earlier in the pipeline, and almost all of them are LLCs taxed as partnerships, to allow the losses to specially allocate to the money partners. But they are generally bought out long before an IPO.

quote:

---

I think you have it backwards.

---

I think I did reverse that.

LLCs were relatively new back when I went to law school - the buzz was they would, effectively, replace S-corps over time, and certainly very few people recommend even starting an S-corp - except in very, very few, unique circumstances.

Existing S-corps - probably not worth the trouble to convert - but, without stats, I suspect the number of new organizations under LLC dwarfs S-corps.

quote:

---

S-corps can make a lot of sense for personal service businesses. You can achieve some permanent savings of self-employment taxes under the right circumstances.

---

This is where we see a lot of these. Single member LLCs electing S Corp status to take advantage of self-employment tax savings. It's a tricky area but if you are careful it can be a nice setup.

LLC's are not subject to Louisiana Franchise Tax. This includes LLC's that elect S Status. A state corporation, whether taxed as C Status or S Status, is subject to Franchise Tax.

I've actually had several state corporations - taxed as S - do a state conversion in the last couple of years to an LLC in order to save franchise tax. They are now a state LLC taxed as an S Corp.