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    6 Replies Latest reply on Feb 6, 2008 3:59 AM by Dangelo

    Difference between S-corp and LLC for a consultant

    ndp125 Adventurer
      Hi,
      I have read up a bit on S-corp and LLC hwoever, not very clear on what would be best for me.

      I and my wife are planning to start a company as conulstants. We already had few projects last year and figured running this through a company would be more beneficial tax wise as well give a more formal appeal to our clients.

      Keeping this in mind we are considering S-corp as it has more flexibility in changing the partner's share in the company as well as makes it easier to add another partner in the future.
      Also S-crop is cheaper to maintain and start compared to LLC

      These are the only primary differences I am aware off between S-corp and LLC

      Is this correct ?

      Please let me nkow if you differ in opinion.
        • Re: Difference between S-corp and LLC for a consultant
          LUCKIEST Guide
          *125, Welcome to this web site. Yes You are right, an S-corp has more
          flexibility in changing the*
          *partner's share in the company as well as
          makes it easier to add another partner in the future.*
          Also S-crop is cheaper to maintain and start compared to LLC.
          Do you have an Accountant??
          Go to the Members page and add a few words about you and your business.
          LUCKIEST
          • Re: Difference between S-corp and LLC for a consultant
            GrowthCurve Adventurer
            Distributions from the S-corp are not subject to FICA/SE...

            I suggest that you spend a couple bucks and run it down with a CPA.
              • Re: Difference between S-corp and LLC for a consultant
                ndp125 Adventurer
                Thank you Luckiest and Growth curve for your answers.

                To answer some of your questions:
                Yes, we do have a Tax Consultant who has been working with us for some time.

                In terms of our business we mainly require going on site and meeting with clients and discussing and troubleshooting their technology problems. We do not sell any equipment only services and maybe write up computer programs based on hourly fees.

                So one additional point to clarify is are we limite by the area in a specific S-corp or LLC. E.g if we are dealing with technology and database or technology and healthcare, what happens if we also add manufacturing ?

                Is there such a diversity available in S-corp or LLC ?
                  • Re: Difference between S-corp and LLC for a consultant
                    GrowthCurve Adventurer
                    It doesn't really matter what your business does. In your articles, it will say something like, "The purpose of the business is to sell widgets, but the business has the right to perform any activity permitted by the corporation code." (Which basically means you can do anything...)

                    You won't be precluded from getting into a certain type of business because of the entity that you select.
                • Re: Difference between S-corp and LLC for a consultant
                  Lighthouse24 Ranger

                  An LLC is the more flexible option, and is simpler/easier to operate and manage. The main potential disadvantage with an LLC is that you could pay more in employment taxes (of course, handling payroll taxes as an S Corp is more time consuming and therefore more costly if an accountant handles it, so the net difference is often a wash, and most consulting firms like yours seem to opt for the LLC structure). Hope this helps. Best wishes.
                  • Re: Difference between S-corp and LLC for a consultant
                    Dangelo Wayfarer
                    ndp125 depending on your business you could go either way but LLC has advantages that S doesn't. the other thing is that you can transfer assets between the two. LLC has the great advantage that it hides your assests like an umbrella, so i.e. if you were to own a house (and by the way, if someone owns a house here under their name you are exposing yourself to uncessary risk, always have it under your LLC name) - so if you were to own a house or a business and it is under your name, for any reason you could be sued and may lose the whole thing... especially if you are in CA where you don't have to be right to win the case... (I am sure we know a few cases like that)

                    America has 7% of the world's population but 72% of the world's lawyers... (A Fun fact for you :)

                    if it is under the LLC however, it would be pretty much impossible to lose anything IF you don't expose openly what you have or make a bad move like from your personal name to LLC or from LLC to S. (I would suggest transfering your major assests like a biz or a house from your personal name to S and then to LLC - these are foreign for most people but that is why legal advisors exist)

                    See LLC is like a box, you put the lid on it, you control it, but no one can peak in to see what you got inside... IT SERVES TO PROTECT YOU.

                    Now, I can go on on this, but I will just say that if it was me, regardless of how much I know, I would still speak with a legal advisor that specializes on this.

                    Do NOT talk with an accountant for this, accountants know how to do taxes and number, this has to do with the laws, unless they have experience on this firsthand... I would still personally speak with an experienced attorney that specializes in this!

                     

                    I hope this helps,
                    Nik