Can anyone give me some broad strokes on the comparative advantages of an S Corporation over an LLC? Or vice versa?
By the way, I live in California, if that matters.
Thanks.
VERY broad–and I’m not your attorney or tax advisor–not your state etc. Any choice of entity question is SO context and state-law specific, that you need to get your own lawyer.
That said.
As you’re probably aware given that you’re choosing betwen the two, they both have flow-through partnership-like taxation combined with the limited liability of a corp.
LLCs are more flexible–you can set up the governance and profit and expense sharing and ownership and all purely based on agreement–which gets you outside some of the constraints of the established corporate law. LLCs can also have a wider variety of types of members–some that are not allowed under S-corp law for shareholders, such as no foreign shareholders (IIRC). (It depends on your specific plans as to whether that applies.) LLCs are also simpler to set up and run–although the extent of that depends on the S-corp law in your state. Some states allow close corps to be run almost like partnerships these days without losing the corporate veil of limited liability.
The only adavantage I’ve seen to S-corps is the tax advantage of allowing a shareholder to be an employee. That lets the shareholder set herself a salary that is something less than the full economic benefit she takes out. That salary is all that is subject to payroll taxation, and the rest is a distribution. In an LLC, the member gets the self-employment payroll taxes on all income. Either way, all of it is taxed for income purposes, but some highly paid professionals who can justify a reasonable wage less than their economic benefit can save enough on payroll tax to justify the added effort of complying with the corprate laws.
YMWDV (Your mileage WILL DEFINITELY vary.) Ask you accountant/attorney for details.
Hope that gives you a start though.
I just went through this a couple of years ago in California. There used to be a bigger difference between the two at one time but things have changed to the point of there not being much real difference at all in most cases but a significant difference in other cases.
In my specific case, a single employee/owner consulting company, the S-Corp was determined to be the better choice by my lawyer but he said that it really could have gone either way.
If you tell us more about your prospective business, someone more knowlegeable can probably help you. With what you have told us, the question can’t really be answered.