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Is it better to be an S-Corp or an LLC?

Basically, the answer to your question depends on how you plan on developing your company and what direction you see your venture going in. See more: What’s The Difference Between LLC, Corporations, and S Corps

One of the basic questions is whether you plan on keeping this a smaller, closely held company or whether you plan on trying to expand more significantly. If you only see your business staying within your sole ownership, or within a limited pool of ownership interests, then an S-Corp. could be beneficial. However, there are other considerations you should think about.

One of the distinctive differences between the two legal entities is their restrictions. Overall, S-Corps are significantly more restrained regarding who can own them, how their shares can be held, etc. However, there are also a number of similarities as well. Here is a comparative breakdown of the two:

Similarities

1. Limited Liability: Both entities will provide owners with protection of their personal assets. Each one is considered a separate legal entity, thus the owners are separate from the company itself.

2. Pass Through Tax: Generally, income tax is not paid at the business level in either an S-Corp or LLC. Rather the business profits pass through and are taxed at the personal level of each owner.

3. Formalities: Each entity requires state filing requirements, which may vary depending on what state you are looking to operate in.

Differences

1. Ownership: LLCs can have any amount of owners/shareholders. However, S-Corps are limited to just 100 shareholders. So there are definite implications with this restriction if you are considering expanding your company to a larger market with bigger investors later on down the road.

2. Who can Own: LLCs may be owned by any individual regardless of their citizenship. However, S-Corps can only be owned by US citizens or residents. So once again, depending on where you want to expand and who may be an investor, you will want to keep this limitation in mind.

3. What can Own: LLCs may be owned as subsidiaries, being controlled by parent Corps., LLCs, partnerships, etc. However, S-Corps must be owned by individual shareholders, and cannot be a subsidiary of some other type of business entity. Thus, another limitation to keep in mind when seeking investors.

Realistically, your best bet is to consult with a lawyer who can give you an in-depth look at what your best options are. From your post, it sounds like you are looking to go coast-to-coast with your operations, so I would suggest getting a hold of an attorney relatively soon. Also, you will want to have some advice about the best methods of hiring freelancers in order to limit your responsibility as an employer. Check out LawTrades for any and all of your legal needs; our legal marketplace makes it super easy and affordable to connect with an experienced startup attorney.

Other than that, I wish you the best of luck with your company. I am happy to hear about a startup centered around education. There is nothing better to see than innovative improvements to US education. I hope this answer was helpful. If there is anything else I can help you with please don’t hesitate to reach out!

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