LLC vs. S-Corp: An Overview

A limited liability company, often referred to as LLC, is a business entity ideal for business owners who are looking for more protection from personal liability. LLC is the least complicated and restrictive type of business structure to establish and operate, as you can act as your own registered agent to complete the operating agreement. This business structure also guarantees no double taxation. 

An S Corporation is a tax classification, which lets the International Revenue Service (the IRS) know that your business will use a partnership taxation system. Launching a corporation is more complicated than launching an LLC, as you will need to register as a C-Corp first, and then adhere to more specific guidelines to be eligible to switch to an S-corporation. This business structure provides limited liability protection but allows any corporation with 100 shareholders or less to be taxed as a partnership.  

What Is a C-Corp?

A C Corporation (C- Corp) is a legal entity that is separate and distinct from its owners. It is the most common type of corporation recognized by the federal government. A C-Corp is formed when the articles of incorporation are filed with the state, and the IRS issues the company an employer identification number (EIN).

The main difference between a C-Corp and an S-Corp is that C-Corps must pay corporate taxes while S-Corps do not. C-Corps also have more flexibility regarding ownership structure, capitalization, and allocation of profits and losses. Additionally, C-Corps can issue equity (e.g., stocks) to raise capital, while S-Corps are not.

How to Apply for an EIN? An Employer Identification Number (EIN) is a 9-digit sequence that helps identify your business for tax purposes. An EIN is required before registering a company in the USA (whether an LLC or a corporation). The IRS provides a free registration service for all applicants and can be completed online.

Should I Open a Separate Business Bank Account?

It is highly recommended to have separate bank accounts for personal use and your business. Sometimes, this can even be a state requirement. Most of the time, in the USA, a business bank account is needed when you register with a company, depending on what type of company you want. As a business owner, having separate bank accounts to track financial transactions is one of the most essential parts of building a sustainable business, especially for small businesses. This information helps document the financial health of your company and aid in future business decisions in our business’ best interest. Having separate bank accounts also allows you to pay less in taxes.