S-Corp v. LLC. Why not both?

Have you ever been advised that you should “form an s-corp” for business tax purposes even though you really want to take advantage of the superior liability protection and ease of administration of a limited liability company (“L.L.C.”)?  This is a common apparent dilemma many of my clients present to me in our initial meeting.  They are always very pleased when I explain that their business can have it both ways.

That is because there is no such thing as an s-corporation.  What lawyers and accountants refer to as an “s-corp” is really a tax code fiction created when an entity such as a corporation (“Inc.” or “Corp.”) or L.L.C. makes an election with the IRS to be treated as a “subchapter S” entity.  So for all purposes, except taxation, the entity is treated as whatever it was when formed under state law (i.e., a corporation or L.L.C.).

Therefore, if you organize your business as an L.L.C., you can still take advantage of subchapter S tax treatment while enjoying L.L.C. liability protection and ease of administration for all other purposes.  For state tax purposes, the entity will be treated as an s-corp–just as it is for federal tax purposes.

I hope you have found this information to be useful.  Please comment below with any other ideas for topics you’d like to see discussed here.  And be sure to watch the companion video at the following link for further explanation: C-Corporation v. L.L.C. Video.

You can contact The Lawyer for Small Business at webmaster@southernbizlaw.com or (404) 558-7771.

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