Got Family Quick Bits: Entity Choice

Hello, this is Got Family and I am Carey Berger and today we’re going to talk about entity choice, and we’re going to talk about just two. We’re going to talk about the differences between an LLC and an S corporation, because that’s the most common one we think of. The difference really is this, the difference between a C Corporation and an S Corporation is simply one of taxes, they are otherwise identical, and a C Corporation has its own tax life, and an S Corporation is a pass-through entity that passes its tax experiences on to the shareholders. Same thing goes for an LLC. You can have a pass through or a non-pass-through LLC, and so thus, they are the same. Now we’re back to the first question, LLC versus C Corporation, and here’s the funny answer; they’re both about the same. What’s the difference? the difference is this, the C corporation or the corporation of any form has been around for a long, long, long time as in, let’s just say, hundreds of years, and let someone prove me wrong. In doing so, the way it has evolved is a problem is discovered, and they would fix it, another problem is discovered, they fix it, and so over the course of the millennia we’ve got a great deal of case law which defines exactly what happens under a great number of circumstances, and it fixes it. Think of it as kind of a leaky pipe that’s been patched over, and over, and over again. It is so well patched it is not leaking anymore, there is no question. It may be little ugly, and cumbersome though. That’s where the LLC comes in. Short answer is it’s called a limited liability company. It was designed as a response to the Corporation, it is virtually the same thing. It is sort of a cleaned up, leak free version of the Corporation, it will do everything that the other one does only with slightly different terminology. So what’s the right answer? Whichever one your attorney is most comfortable working with. Both work fine, don’t get caught up in the semantics. If your attorney says, I really like corporations, use a Corporation. If your attorney says, I really like LLCs, use LLCs, and neither one is wrong, both can be just as functional, it’s fine. in my personal opinion, I like LLCs. I like those nice, tidy, new things that are all done right the first time, so to speak, but I’ll tell you what, there’s nothing wrong, and I actually kind of like the idea of something that has been tried and true, which is what a corporation is. As you make your decision think of us as we are working here at the crossroads of business and family, and give us a call anytime you wish. This is Got Family and I am Carey Berger.