I often see a lot of questions about choice of business entity here on the SUN forums. There is A LOT of information on the internet about this issue; this can be good and bad. It`s good in that it allows entrepreneurs to research and become conversant on the issue. It`s bad in that it can become VERY confusing for those without much prior knowledge about the issue. Hopefully, this will clear up some basic questions.
I`m going to make a generalization and say that about 90% of the SUN entrepreneurs that I`ve seen on the forums are very, very early stage, home-based, single-owner business people. This being said, it is very advisable to obtain a business entity under which to conduct business. In practical terms, the two major choices in this respect are the S Corporation or the Limited Liability Company (LLC).
When I get a client who is similar, demographically speaking to the type of entrepreneur I just described, my general answer is this: there isn`t much of a practical difference between the S Corporation and the LLC. Both provide liability protection for the owners, and both provide pass-through tax treatment, and these are the benefits inherent in choosing either an S Corporation or an LLC over a C Corporation, Sole Proprietorship or General Partnership.
This seems like a really simple answer, but in terms of the entrepreneur and entrepreneurial venture I just described, there are not strong arguments for or against either an LLC or an S Corp. Don`t get me wrong, there are certainly arguments either way, my point is that choosing one over the other isn`t going to ruin an entrepreneur`s life or doom his or her venture to failure.
I`m sure there will be those on SUN who disagree, but more important than obtaining a business entity is running it properly so that it can provide to the owner all of the benefits and protections a business entity has to offer.
Clint A. Costa, Esq., CPA (Licensed in Illinois only)