When choosing the right legal entity for your business, it can be difficult to know which one is the right fit. New Hampshire allows for both limited liability companies (LLCs) and S-corporations (S-corps). Below, we will outline the differences between the two and help you decide which is best for your business.
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LLC
An LLC is a legal entity that separates the owners (members) from the business. Members are not personally responsible for business debts or liabilities. In addition, LLCs are relatively simple to set up and operate. They can provide significant flexibility in management structure, taxation, and ownership.
Pros
One of the biggest advantages of forming an LLC is that it provides personal liability protection for its members. LLCs also offer significant flexibility in management and ownership. The members can choose to operate the LLC and collectively make decisions, or they can hire professional managers to perform the day-to-day operations of the business. LLCs can be taxed as a pass-through entity, meaning that the business does not have to pay tax on its profits as they are passed on to the members who then pay income tax on them.
Cons
While LLCs offer personal liability protection, members of an LLC must pay self-employment taxes on their share of the profits. In addition, forming an LLC can come with additional set-up costs. New Hampshire requires LLCs to pay a $100 filing fee to the Secretary of State. Furthermore, some banks may require additional paperwork and fees to open a business account.
S-corp
An S-corp is another legal entity that separates the owners (shareholders) from the business. Unlike LLCs, which offer taxation flexibility, S-corps can only be taxed as a pass-through entity. Additionally, S-corps have tighter restrictions on ownership.
Pros
Overall, S-corps provide similar benefits to LLCs in terms of personal liability protection. However, S-corps offer tighter protection to its shareholders since the company pays fees and taxes instead of the shareholders themselves. This can result in significant tax savings. Additionally, S-corps offer the potential for increased funding through shares sales.
Cons
S-corps have tighter restrictions on ownership. For example, shareholders must be citizens or permanent residents of the United States, and no more than 100 shareholders can own any given company. Additionally, they require significant bookkeeping, accountancy, and annual filing fees. Last, forming an S-corp can be much more difficult than forming an LLC and can bring additional regulations and statutes that can be complicated to follow.
Decision
Deciding between an LLC and S-corp ultimately comes down to personal preference and circumstances. If personal liability protection and flexibility in taxation is important to you, LLC may be the way to go. If you care more deeply about tight protections against taxes, preserving the identity and autonomy of family-owned corporation, or purely private investors for a specific business sector, S-corp might be the better fit. No tax setup is useless on or invaluable, each tax option grants benefits and support otherwise other tax options wouldn’t survive in the marketplace; small businesses benefit from tapping the markets proficient in legal system, administration process lines, operative bureaucracy, banking and compliance regulator firms.
In conclusion, both LLCs and S-corps offer personal liability protection for business owners. Choosing the right entity for your business depends largely on your personal preferences and business circumstances. We recommend speaking with an attorney or accountant to help you make a fully informed decision for your specific business.
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