What's a better platform for an S corporation: An LLC or a regular corporation?

I like using a limited liability company as the platform for an S corporation rather than a regular, old-style corporation. But you need to consider a handful of issues if you're trying to decide between these two alternatives.

LLCs Make for Simpler Governance

With a limited liability company, you have a simpler set of governance procedures. In a nutshell, you just need to honor the LLC operating agreement.

With a corporation, you'll need to get pretty formal and have annual shareholder meetings, a board of directors, regular board meetings, corporate officers, and so forth.

LLCs Allow Delayed S Election

Another benefit of using an LLC as the platform: You aren't forced to use S corporation tax accounting rules until the S corporation option will save you taxes.

In other words, with a limited liability company as the legal entity, you can let the LLC be treated as a sole proprietorship or partnership in the first months or first years of operation.

As noted elsewhere on this web site, an LLC can be treated for tax purposes as just about anything you want. Treating your LLC as a sole proprietorship or partnership may keep your accounting easier. And such LLC treatment may cause deductions to more easily flow out of the entity and onto your personal return.

Branding May Be Better with Corporation

One other comment about this LLC versus regular corporation question, should be made however...

Sometimes, in spite of the simplicity and flexibility offered by limited liability companies, people need to go with a regular corporation for branding or credibility reasons.

For example, investors may be uncomfortable investing in a limited liability company (perhaps because they don't understand the LLC option). And here's another example: customers, vendors and employees may be more comfortable dealing with a regular corporation (again perhaps because they just don't understand the LLC option). In these sorts of cases, you may be forced to use a regular corporation. And that's not that big a deal.

By the way, this web site sells S corporation kits that "start" with a limited liability company and kits that "start" with a regular corporation.

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