Advantages of an LLC vs. S-Corp for New Entrepreneurs
Gregory Gilman, CEO of RxVantage (www.rxvantage.com), speaks on the advantages of LLC vs S.Corp. This information will help new entrepreneurs in making a decision when thinking of creating an LLC or an S-Corp.
- An LLC is easier to manage for first time entrepreneurs
- No cap on the number of shareholders & permits non-US shareholders
- Both entities allow pass-through taxation which is similar to a partnership
- An LLC requires a more difficult conversion to allow institutional investment
New entrepreneurs ask me all the time, “Should I set up an LLC or should I set up an S-Corp?”
And I have set up a ton of companies and advised many more and in my opinion, there are a number of advantages for an LLC.
They are, first of all, much less formal and they’re easier to manage. So for a first time entrepreneur who may have not have managed a company before and is not used to following all the corporate formalities, an LLC is much easier to manage on a day to day basis and you are much less likely to lose the protection of your entity because you do not follow those formalities.
The LLC also allows for an unlimited number of shareholders. It includes shareholder from foreign countries as well which an S-Corp does not.
Both entities, both in LLC and the S-Corp allow for pass-through taxation. So taxation in those entities is treated as though it were a partnership so there is no advantage there.
One of the disadvantages of an LLC however is that it would need to be converted to a C-Corp before you could take any institutional investment. That’s a long and expensive process for an LLC whereas it's a very easy conversion process for an S-Corp.
Overall, for most early entrepreneurs, an LLC is probably the best way to go.