Should I be an LLC or a Sub-S Corporation?

Before the early '90's, the "preferred" form of organization generally was an S corporation because it combined the limited liability associated with a corporate structure with flow-through treatment of tax benefits to its owners. An LLC is sometimes preferred because in addition to each of the aforementioned benefits, an LLC is not subject to many of the restrictions to which an S corporation is subject. In addition, future restructuring of an LLC genearlly avoids certain negative income tax consequences that future restructuring of a corporation may involve.

A rule of thumb has developed among many accountants that if the business will be actively managed by the shareholders[s], and it will be a small business, a sub-S corporation is the choice. For real estate or other "passive" investment type companies, the LLC is the choice. Again, because this decision is vitally imporant to the financial health of the company and its owners, you are strongly advised to obtain advice from your accountant before proceeding. If you do not have an accountant we can recommend one to you.

Answer provided by Chuck Roach - Roach Law Office