S-CORPORATIONS AND LLC
When discussing the comparisons and contrasts between S-Corporations and LLC’s we will need to assess benefits and disadvantages of both for entrepreneurs and small business owners. A major obstacle for many businesses initially is the need to expand. A business organization such as a Corporation, offers the ability to expand, but at the price of a double taxation to profits earned and shareholders dividends, while the structure of a Partnership (General and Limited) had major disadvantages in taxation and liability for entrepreneurs and small businesses. Thus the federal government created two hybrid business structures: the S-Corporation and the Limited Liability Company (LLC). “ The choices offered by the three leading partnership-type business forms. The general partnership form suits very closely held firms managed directly by their owners not only in terms of its default management rules, but also its rules regarding owners’ power to bind the firm. In contrast, management and control are sharply separated in limited partnerships, as exemplified by the limited partnership “control rule” which penalizes limited partners who participate in management. The LLC falls between these extremes, offering a choice between centralized and decentralized management, multiple sets of fiduciary and agency rules to suit both options, and more ambiguous treatment under regulatory statutes.”(Ribstein, 2006, p. 14). This refers to one of the biggest benefits of an LLC being that all owners of a limited liability company are protected from being personally liable for the debts, obligations and lawsuits of the formed LLC. Disadvantages to an LLC is that it does not get taxed like a typical corporation, thus its owners must be very careful not to assume a corporation structure. LLC’s must have at least two owners and each must pay self-employment taxes. Additionally, LLCs are the newest of all business structures and not all states...
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