Forming an S-Corporation (Sub-S Corp) and a Limited Liability Company (LLC) in New York Part 3

 
      In Parts I & II of this series we discussed many of the considerations you will need to review in determining the best entity for your business.  Part III summarizes all of this discussion.

Bottom Line for S Corporations:

Pros:
• An S-Corp is less expensive to form than an LLC.
• More people are familiar with the structure of an S corporation.
• It may be possible to save money on self-employment taxes.

Cons:
• S-Corps put serious limitations on the number and kind of permitted shareholders.
• S-Corps do not allow for special allocations and are less flexible than LLC's.
• S-Corps put limits on loss deductions on the shareholder level.
• S-Corps require ongoing formalities to preserve their limited liability shield.
• S-Corp status is not recognized by New York City, thus the s corporation is subject to corporate level tax.

Bottom Line for LLC's:

Pros:
• The LLC offers a very flexible structure.  Members can agree to special allocations of profits and losses.
• The LLC offers more possibilities for loss deductions.
• LLC's have no limitations on the number and kind of owners.
• LLC's require less ongoing formalities.

Cons:
• LLC's are expensive to form.
• LLC's are expensive to maintain when special allocations are chosen by the members.
• LLC's can be more complex with respect to accounting procedures.
• LLC's can be more expensive for the members with respect to self-employment taxes.

     So now that you have learned about the similarities and differences between S-Corps and LLC's, you will need to carefully consider what your business objectives are and which entity better supports your objectives.  It is important to discuss options with your business advisers and CPA to determine what makes sense for the business you want to engage in and then let your attorney assist in setting up the entity.    Good luck and great success in your future endeavors.