LLC or S-Corp – Which Entity is Right for Your Company?

If you are forming a new business (or operate an existing business), Georgia law can protect your personal assets from you company’s liabilities – but you must play be the rules. This means either incorporating or organizing your company in accordance with the Georgia Corporations Code. Deciding to protect your assets is a “no-brainer”. 

Determining which structure would be most advantageous to do so, however, can prove a daunting a task for entrepreneurs and small business owners.

Savvy business owners prefer structuring their businesses as either corporations or limited liability companies (“LLCs”). The reason is that unlike sole proprietorships and partnerships, both of these entities offer liability protection. This means that the owner of a company cannot be held personally responsible for the company’s debts. Instead, the owner’s personal assets (homes, cars, retirement plans, and the kids’ colleges funds) are shielded from company liabilities (lawsuits, contractual obligations, etc.).

Along with the LLC, the business structure that appears particularly attractive to the entrepreneur is the S-Corporation. S-Corps and LLCs are similar in that the IRS deems both to be “pass-through” entities for tax purposes: the income of these companies is passed through to their owners and reported on the owners’ personal income tax returns – thereby eliminating the double taxation incurred by owners of a standard corporation, or C corporation. (With a C corporation, the net business income is subject to corporate income tax, and the monies remaining after the corporate income tax are taxed a second time when they are distributed as dividends to its owners who must then pay personal income tax.)

So what is the difference between an S-Corp and an LLC? And which structure is right for you?

The answer depends on your own unique situation. If operational ease and flexibility are important to you, an LLC is a good choice. On the other hand, if you are looking to save on employment tax and your situation warrants it, an S-Corp could provide the ideal structure

When choosing the proper corporate structure, there is no one, magical entity that works for everyone. The specialized corporate attorneys at Shepherd Law can assist you in choosing the right structure for your business. The important things to consider are the operational, legal and tax aspects of each structure, and our attorneys provide trusted legal guidance in applying these factors your unique situation.