By Bill Yanger
The phone calls are predictable by now:
"Hey Yanger, me and my buddy wanna start a little widget business. LLC or one of those Sub-S thingies?"
Or "My brother's wife's cousin's neighbor's plumber said I'd be stupid not to make my company a subchapter S. I say LLC. What's the deal?"
I can't remember the last time someone came in or called and said, "Set me up in a good ol' C-Corp please!"
So what gives? Are plain-jane run of the mill corporations now passe'? Does anyone even operate a straight C-corp anymore?
Well, of course they do. While flexibility and lack of rigid structure have made LLC's the sexy business model of late and the smooth tax perks of a Subchapter-S make it an easy sell, there are darn good reasons to consider the tried and true C-Corp for small business entity structure.
First, LLCs get taxed like partnerships and the partners, or "members," have to wait until the partnership files its tax return before receiving a K-1. Depending on the size and complexity (and the efficiency of your CPA...) of the LLC, you may wait a significant period before being able to file your own taxes. With a C-Corp you can classify yourself as an employee and get a W-2 lickety split and file pronto. Plus, banks like to see W-2's when you apply for financing. They kind of look sideways at K-1s.
Second, if you are fortunate (and successful) enough to offer yourself and your employees benefits like medical coverage, childcare, life insurance and retirement, LLCs and Sub-S entities have significant limitations on the deductions allowed for these perks. C-Corps? Not so much.
Third, the whole tax thing actually isn't the lurking monster some make it out to be. Since C-Corps have progressive tax brackets, you (and your accountant*) can be creative and figure out the best plan in any given year to vary how much you pay yourself and perhaps avoid higher tax brackets for both you and the company. And if your company derives its revenues from the direct efforts of its employees like consultants and, yes, attorneys, it is reasonable then to dole out all of that revenue as income to the employees so the company's income is negligible.
Finally, if you simply hate corporate protocols like minutes and meetings and get all tingly over the loosey goosey management style an LLC affords, then what the heck, go for it. You can file an IRS Form 8832 and tell the IRS to tax your LLC as a C-Corp. Awesome or what?
So LLCs are nifty things and Sub-S's have their groupies. But don't kick C-Corps to the curb. If you see one on the way home tonight, give it a hug. They need love too.
*I am not an accountant and don't want to be an accountant. Talk to yours about your particular circumstance.