LLC Or S-Corp: Which Is Better For My New York Business?

Business owner reading a document on different types of business formations

If you’re ready to launch your new business, you probably have a number of questions. And many of those will involve the law, including which legal entity your business should take. For numerous New York businesses, this question boils down to a choice between an LLC or S-Corp. Which one of these is best for your company? And once you make the decision, how do you form the appropriate entity? Let Rosenbaum & Taylor be a part of your journey. If you have business formation questions, our team of business law attorneys is ready to help.

LLC vs. S-Corp

There are advantages and disadvantages to both limited liability corporations (LLCs) and S-corporations (S-Corps). Choosing which legal entity to go with will require weighing the two against each other. But here are a few of the basic pros and cons for both:

LLCs – the Good

  • Actual formation of the LLC is pretty simple. For a single-member LLC, it usually only requires a one-page form.
  • Running the LLC is pretty simple as well. There aren’t as many formalities with an LLC versus S-Corp, in terms of actual operations.
  • The LLC can shield your personal assets. If your business fails, creditors generally cannot come after your personal assets to pay the business debts.
  • Tax benefits. LLCs do not pay taxes as a business. Their profits are passed through to the shareholders and reported on their personal income taxes.
  • Flexibility. You can have as many owners as you want in an LLC. Plus it is much easier to modify an LLC if the company grows or otherwise changes.

LLCs – the Bad

  • Tax drawbacks. Members of an LLC must pay all applicable self-employment taxes.
  • Raising capital. LLCs cannot issue stock to raise capital, unlike corporations. A new investor would have to become a member of the LLC.
  • Perceived risk. Investors and banks generally consider LLCs to be riskier. This makes them less willing to invest in or lend to an LLC.

S-Corps – the Good

  • Tax benefits. Certain profits in excess of deductions can be distributed to owners as dividends. Dividends may be subject to a lower tax rate than income.
  • Raising capital. Since corporations can issue stock, it’s much easier to draw investors and raise capital.
  • Protecting assets. Incorporation offers a great way to protect the personal assets of the owners. Generally, only the corporation’s assets can be targeted in legal or creditor actions.

S-Corps – the Bad

  • Tax drawbacks. There may be certain state and local taxes that apply to the S-Corp.
  • Formation. It takes considerable time and effort to form an S-Corp, and certain requirements must be met.
  • Operation. Running the S-Corp is more complicated than running an LLC. Meetings must be held, minutes have to be kept, and there are more formalities.

Forming the Entity That Best Fits Your Business

The above are only a few of the pros and cons of LLCs and S-Corps. Remember, too, that these are general guidelines. Your exact situation could be different, so talk with an experienced New York business law attorney before deciding.

When you are ready to form your business, a knowledgeable attorney can help. Your lawyer can take care of the necessary drafting and execution of documents, agreements, and other paperwork. An attorney can also help with the filing and explain what fees must be paid. Plus, your lawyer can explain your and your entity’s legal obligations so you don’t run afoul of the law.

Still Have Questions? Ready To Get Started? Count On Rosenbaum & Taylor

If you’re ready to form your business, or you still have questions, turn to Rosenbaum & Taylor. Our experienced New York business law attorneys can advise you on all aspects of business formation. We understand you have many questions and concerns, and we want to see your company thrive. That’s why so many New York businesses trust us for their legal needs. Call us today to find out more.

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