What are the pros and cons of creating an LLC vs. S corporation?

LLC and S-Corps are popular business entities in the U.S. (LLC probably more common). Here’s a quick break down of some pros/cons of each:

– LLC’s are great if you want that liability protection without all the formality and paperwork. One of the great features about an LLC is it is not taxed as an entity. Members are taxed usually in ratio of their ownership percentages (pass through tax). Furthermore, it’s very easy and cheap to set up.

Typically, LLC’s are not great for business looking to bring on investors for a few reasons: (1) Investors don’t really don’t like pass-through entities; (2) the tax partnership rules are super complicated; (3) it doesn’t allow for stock option plans, convertible notes, etc., (4) it gets more expensive and complicated down the road.

– The S Corp, like the LLC, is a pass-through entity for federal taxes (aka the taxable profits or losses for the business are passed through to the business owners, who record these as part of their personal tax filings). Consider this if you think you’ll make a profit right after the incorporation and will distribute it to the shareholders. With an S-Corp, you have all the regulatory stuff as a C-Corp, along with the tax pass through advantages of an LLC. But there’s a lot of restrictions on the type of investors you can bring on along with other stuff that a legal professional can better clarify based on your particular business.

If you’re looking to file, then check out LawTrades. You’ll get introduced to savvy business lawyers who can help you pick the right one and do all the filings for you.