Incorporation of a business is an essential and prudent decision. When a business becomes an LLC or a corporation, it gets certain tax benefits and varying levels of personal asset protection. Two of the main types of incorporation involve becoming either a Limited Liability Company or an S-Corporation. What are the benefits of choosing an LLC over an S-Corporation?

The biggest benefit of the LLC is that there is no corporate taxes on top of personal taxes. In a full fledged corporation a company will be taxed on its profits. Then, the business owner will be taxed again on personal income derived from the business. With an LLC, the corporation is not taxed and the owners are only taxed on personal income.

Another great benefit of being an LLC is that it is easy to run. Corporations are required to keep minutes, pass resolutions and be more formal with its business decisions. The LLC route means that you simply have to have the verbal agreement of the owners to go ahead with any new business.

This is because there are no stockholders to slow down the decisions made by the owners. In a corporation, the stockholders can legally block or object to any acquisitions or any other decisions that they don’t like. This can be a barrier to growing your business over the long haul.

This all comes with the same limited liability of a corporation. If a business were being run as a partnership, or a sole proprietorship, the company would have to pay its debts with personal assets. Corporations are only required to put up company assets, so the liability on the owners is much less.

One nice trick that could potentially give a business the best of both worlds is to incorporate as an LLC and then elect to be taxed as an S corporation. Why would this be helpful? Even as an LLC, the owners of the business still have to pay self-employment taxes. As an S-Corp, the owners are not considered self-employed. Instead, you would pay unemployment taxes instead of a self-employment tax.

After taking account your expenses and paying your own salary, you might find that you actually save more money electing to take that route. The business still gets all the other benefits of being an LLC even if a business goes this route. Always consult a tax professional before deciding if that route is best for your business.

Corporations are great ways to protect your assets and get tax benefits as well. Each business situation is going to be unique, so no one situation is going to fit everyone. However, it is something to look at and research before deciding to go into business on your own.