As a small business owner, you most likely have had conversations with a professional to discuss which business entity is right for your growing company. Whether you choose to incorporate your small business as a limited liability company (LLC) or an S corporation, you should consider the various benefits of incorporation.
You may wonder about the differences between LLCs and S corporations. According to the Small Business Association (SBA):
“A limited liability company (LLC) is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The “owners” of an LLC are referred to as “members.” Depending on the state, the members can consist of a single individual (one owner), two or more individuals, corporations or other LLCs.
An S corporation (also referred to as an S corp) is a special type of corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation.”
Read below to discover answers to common business incorporating questions!
Asset protection
S corporations and LLCs both offer liability protection and limited liability for business debts and obligations. Incorporating a company allows business owners to separate and protect personal assets.
Tax benefits
When business owners set up their corporation, they are taxed on individual and corporate levels; but an S corporations can avoid double taxation of corporate profits and dividends. An LLC is taxed at the same rate as a sole proprietorship and provides limited subjection to personal liability. Profit and loss are typically reported on the owners’ personal income tax returns.
Legitimized business
Adding LLC or Inc. to the end of your business’ title not only safeguards your business from liability and provides tax breaks, but also helps your business appear more reputable. Customers and vendors generally prefer to do business with an incorporated company since the formality adds legitimacy.
If you need assistance with incorporating your business or accounting services, contact us at (781) 436-5810 or request a callback.