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What Is A Limited Liability Corporation?

What is the best legal entity for a small restaurant business, Limited Liability or Corporation Sub. S?

  • I'm staring a small restaurant be myself and was considering a S corporation, when someone mentioned that a Limited liability company may be better.

  • Answer:

    You may want to anticipate what your future needs will be and what you plan on doing with your business and then decide on an LLC or S-Corp. Both have limited liability. One does not hold more protection than the other. There are different rules on the Federal side which is what you should be concerned about. State issues are a concern but for tax purposes focus on Federal first. Shareholder's normally do go on payroll for an S-Corp and can recieve dividends too but, both are taxed, just taxed differently. For payroll there are the normal withholding (FICA, Federal & State Taxes) deducted from each check. Dividends ARE TAXED at the capital gain rates which is currently 15%. Before you get excited about the 15% on capital gains...keep in mind IRS would not be happy to see a shareholder ONLY taking dividends and not salary. There are special rule the IRS put in place just for S-Corps. There salary can't be to high NOR can it be to low...... Dividends do not have to be taken out of an S-Corp. It's up to the discrection of the shareholder(s). For an LLC, draws are usually take and quarterly estimated tax payments are paid to the IRS and state. You do have to pay self employment tax. Self employment tax is basically the FICA that would have been deducted out your paycheck plus the amount of FICA your employer would have pay. You do get to deduct one half of self employment tax to arrive at you AGI (Ajusted Gross Income) One benefit of being an LLC (Single Member) is that it does not need file it's own tax return but can go on your individual tax return on Sch C. That alone with save some accounting fees. There are various differences is what you can within each of the entities. It's not like "well I am just starting out so I will do an LLC and then move up to an S-Corp when I bigger". An S-Corp is not a step up. It would benefit you to consult with an accountant even if it's just for a one time meeting to discuss what would benefit you more. I can you that I am suggesting LLC's to all my clients. I several clients that are fairly large and are LLC's. And no matter what kind of entity you choose.....Liability Insurance is a must!!! Good luck!!

Leslie G at Yahoo! Answers Visit the source

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Check with a local attorney, the rules are different in different states. Good luck with your business!

Carrie H

Well, if you are going to make enough money to have an s-corp make sense than do that. You will need to be good at record keeping or pay someone else to do it for you. You will need to be on payroll and recieve dividends. You may want to visit with an accountant who is familiar with s-corps and see if your situation fits it. It is better than limited liabilty in alot of ways, especially becuase the dividends are not taxed. but you have to take payroll, so that kind of puts a damper on things, but you could do 70% payroll and 30% straight to you in dividends. You can't do that with a limited liabililty company. Also with the s-corp you would want some type of insurance, nothing too expensive just something. With the s corp your personal assets are protected. good luck. get a good accountant, and ask them upfront if they are good with s corps and make sure they continue thier education, so they are up to date on new strategies, etc. some accountants are "outdated" and don't do any of this newer stuff.

chelley

Since you're just starting out, an LLC is the best bet. You can do it online and the filing fee is $60.

Robert E. Lee

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