Should I go with an LLC or an S-Corp?
I get this question quite a bit. I am still in favor of using an S-Corp in many situations. For example, if you plan to keep the business small or have limited ownership, I think an S-Corp works great and tends to be less expensive to set-up and maintain.
But, LLCs are are increasing in number while corporations are declining according to this post Ideablog. In fact, this blog's author seems surprised that we even bother to keep the old S-Corp around at all.
The corporate form is hanging on -- it's what most practitioners know. But it's looking less and less like the future of business associations.
If the S-Corp is so simple and cost effective, why is it fading away?
Contrary to what the author of Ideablog asserts, I find that many attorneys push LLCs. Since they offer no real tax advantage for most entrepreneurs, and since they tend to be more expensive, one might wonder why. But, key in on two words from the last two sentences, attorney and expensive, and you get a clue as to one possible reason. Lawyers make more money from pushing LLCs. There are cases where I recommend an LLC, but it tends to be fairly infrequent.
Also, I often get the impression that being able to say "I started an LLC" is thought to be cool. I don't know if it sounds more sophisticated or like they have done something more substantial, but I do get the impressions from many new entrepreneurs that starting an LLC is somehow more significant than starting a plain old corporation.
As always, I need to say at this point that I am not an attorney. You need to consult with one about matters such as this. But, if they recommend an LLC over an S-Corp for your new venture please make sure to ask them very specific questions about differences in costs (short-term and long-term) and also what specific advantages you would get by setting up an LLC.
Finally, remember that the IRS tax code (part of those 60,000 pages I wish would go away) has many more cases that deal with S-Corps than with LLCs. S-Corps are more established in IRS case law. That means that you are less likely to have your name or your business name in some IRS case in the future as a result of an audit gone bad. Just a thought.....
