Which Business Entity Is Best For You - February 13, 2013

Which Business Entity Is Best For You

February 13, 2013 

Question 

 Ken- Regarding the business structure of an alarm company, what benefits/differences are there between a sub-S corporation and an LLC or LLP? Tom B Washington

Answer

You wisely recogonize that you shouldn't be doing business in your own name, an assumed name or a partnership. You need to create a separate entity to shield you from personal liability for the obligations of your business. I prefer the corporate structure. A sub chapter S election will permit profits and losses to pass through the corporate entity to the shareholders. A C corporation will retain its profit or loss on its own tax return. Most alarm companies should elect sub S status and if you're not sub S then question your accountant very carefully. Both S and C corporations must file their own tax returns and may be a nominal filing charge, in addition to accounting fees. There may be some restrictions for sub S corporation relating to the number of shareholders, but this is not likely an impediment for most alarm companies. A Limited Liability Company will also shield its members from personal liability incurred by the LLC. A single member LLC doesn't have to file a separate tax return. LLC's also don't pay their own taxes; profits or losses pass through to the members. If there are more than two members the LLC will file its own tax return, but won't pay a tax since the profit passes through to members. Because a single member LLC doesn't file its own tax return accountants often recommend this entity. The most important things to remember are that you should do business though one of these created entities and you should adhere to the formality required. This means using the full correct name of the entity, identifying your position, observing meeting formality and filing appropriate tax returns and required filings to remain an active legal entity. Bottom line. Go with sub chapter S corp.

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