Two Cents From a Business Lawyer in Virginia
I hate to see article headlines like this one in Inc.com: “Should Your Business Be an LLC or an S Corp”
The fact is that your company can be BOTH an LLC and an S-Corp. Confusion about this topic is pervasive among new entrepreneurs (and business mag reporters). It is perhaps the single most common question I get from entrepreneurs who are just starting out. I have produced a short video on this topic with more details, but here are the basics….
Businesses are formed and registered at the state level. Every state (and DC) allows you to register a limited liability company (“LLC”) or a corporation, but no state lets you create an S-Corp. That’s because only the IRS can decide whether to let you “be an S-Corp.”
The terminology “S-Corp” refers to a portion of the IRS code that can be applied to certain companies. In fact, you can be registered as an LLC in any state, and as long as you abide by the rules in the IRS tax code, you can elect to be taxed as an S-Corp. That’s right, as I stated above, you can be an LLC AND pay taxes as an S-Corp!
You have to file an election form with the IRS in a timely fashion. And there are some restrictions that would disqualify your company from recognition as an S-Corp. Talk to your business lawyer before you file the S-election.
There are other things wrong in the above article. For example, it says that it costs more to form an S-Corp. That is not true. My law firm, for example, charges one flat fee to form an LLC and file the election to be taxed as an S-Corp. We’ll also form a corporation and register it as an S-Corp for the same flat fee (but we recommend that route only in very limited circumstances).
Then there is the statement that an “S-Corp requires more paperwork.” That also is not true. A well-run LLC taxed as a partnership requires just as much paperwork as an LLC or corporation taxed as an S-Corp.
What is NOT mentioned is that an LLC taxed as an S-Corp must file a simplified corporate tax income return, but that form is no worse–in fact it’s simpler–than filing a partnership return for the company.
The LLC form of company governance has many advantages over a corporation form of governance. And your LLC can be taxed as an S-Corp too. So, ignore the either-or scenario published by Inc.com and go for BOTH LCC and S-Corp status.
Argent Place Law, PLLC is dedicated to the vision of having an entrepreneur in every household, because we believe that only entrepreneurs can save the world! Our mission is to help entrepreneurs manage their business relationships and protect their ideas by using the law to their advantage. Contact us today to learn more about becoming an LLC or S Corp in Virginia.