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    4 Replies Latest reply on Jan 24, 2012 7:50 AM by ArcSine

    Shareholders (S-Corp) vs Members (LLC)

    newmusic11 Wayfarer

      Hello,

       

      I understand that S-Corporations can have a maximum of 100 Shareholders. LLC's can have an unlimited amount of Members.

       

      All in all, I am interested in having individuals put money into my business and in return they can receive an annual percentage of money and possibly have a say in business actions, procedures, attend any meetings or conferences/conference calls, etc.

       

      Are Shareholders and Members, basically the same thing - just different terms...If so, could either do what I am interested in - from what I listed, above?

       

      Thank you

        • Re: Shareholders (S-Corp) vs Members (LLC)
          ArcSine Scout

          Yes, for most intents and purposes (and in particular, the objectives you've named) S-corp shareholders and LLC members are analogous. Officially, a corporation's shareholders run the company "by remote control" via the mechanism of electing directors, who call the shots at the will of the shareholders. An LLC's members do the same thing by naming managers. But in small-company situations, it's frequently the case that the shareholders and the directors are the same individuals (ditto for members and managers).

           

          One difference that might matter to you, depending on your plans: an S-corp must generally have no more than one class of stock. Except for certain allowed differences, all shareholders must have the same rights as to profits, net assets, liquidation proceeds, and so on. So if you intend to have multiple classes of investors with different levels of rights and/or profit-sharing arrangements, you'd need to go with an LLC structure. LLCs are permitted to have multiple equity classes.

           

          Best of luck with the new biz!

          • Re: Shareholders (S-Corp) vs Members (LLC)
            fsmith156 Wayfarer

            You can do the same things with both types of company. S-corp is more restictive about board meetings and also pushes more liability on the owner. LLC filings are simpe and can be done online. You need to think about the structure you want to have in your company and clearly define it. Including shares of stock the company will issue, hold in reserve for further payouts, and terms of dillution. Depending on how complex you plan to get an hour with a business lawyer may be needed, but a well structured LLC can provide you as the founder lower libility. Given this maybe harder to find investores.

             

            Most S-corps I see are people with multiple businesses. Each sub is a LLC and the parent is a S or C-corp. Allowing for an easy central accounting company with LLCs reporting up, but allowing an extra layer of liability protection.

             

            Good Luck.

              • Re: Shareholders (S-Corp) vs Members (LLC)
                newmusic11 Wayfarer

                Hello thank you for the replies,

                 

                I did however end up setting my LLC as a Single Member LLC electing S Corporation tax status. I am afraid this will end up putting me in the highest tax bracket, if I am correct..39.6% or something such as that...

                 

                If so, are there ways of being able to diminish the possibility of being taxed at the highest level?

                 

                I am overall doing this to protect myself and my business, as well as save the most in taxes..would you have any advice for me to do anything?

                 

                Thank you

                  • Re: Shareholders (S-Corp) vs Members (LLC)
                    ArcSine Scout

                    Tax planning encompasses a lot of areas and possibilities, and is very case-specific. A professional tax advisor who has access to all the details of your particular situation can give you the kind of specific advice that you can actually put into action.

                     

                    The intentions stated in your first post (re outside investors) make it a certainty that you'll need an accountant and/or advisor eventually. Taking on outside capital ramps up the complexities a bit, in all areas from bookkeeping to tax planning to securities laws.

                     

                    So this might be a good time to chat with an accountant or small CPA firm. Talk to a few of 'em to get an idea about rates and services. In the early stages, when your situation is simple and your tax planning strategies will be commensurately simple, I think you'll find the accountant's rates to be quite palatable.