As one of the top San Francisco CPA firms for startups and small businesses, one issue we constantly encounter is business formation. We are asked, “Which is better – an ‘S’ Corporation or an LLC?’ The answer as is so often in life is: it depends. Each form of business organization has its advantages, and be sure to consult not only with a CPA but with your attorney. As any advice we give here is general advice, vs. the specific advice we can give if you come in for a consultation, take that into consideration. A personal consultation is the best way to decide which business organization form will work best for your San Francisco startup.
We also work with many San Francisco Bay Area attorneys for startups and small businesses, and by working together, we can help you with both the legal and accounting / tax issues involved in business formation.
The Differences between S Corporations and LLC
Basically an LLC is a sort of hybrid between a sole proprietorship and a corporation. It combines features of both. For example, it passes through income from its activities to its partners and – like a sole proprietorship – it generally cannot survive beyond the death of one of its principals. It is generally easier to administer than a corporation. An “S” corporation, in contrast, is a corporation: it can survive beyond its founder(s), and yet it, too, directly passes income onto its shareholders. But like any corporation it requires more administration and has more administrative hassles than the LLC.
To read more about LLC’s vs. “S” Corporations, please read our latest Tax Tips Newsletter for October, 2014. Even better, call us or send us an email about your business formation issue. We help many San Francisco businesses understand their best business formation options!